On Death and Taxes…and The Candidates
October 15, 2008, The Wall Street Journal

As reported in The Wall Street Journal, the economy and taxes have been one of the major topics in this presidential race.  While the candidates vary in some areas, they both agree that the "federal estate tax exemption should be made portable."  This would mean that a married couple would be able to claim both of their estate tax exemptions, even if one were deceased, without taking a variety of legal steps beforehand.

Under 2008 law, each person is allowed a total exemption of $2 million, making it $4 million per couple.  "But because the exemptions aren't portable, quite a bit of planning is necessary to achieve this result," says John M. Olivieri, a partner in the Tax Practice at White & Case in New York.

Olivieri demonstrates this through a simple example. Suppose a husband and wife each have an estate worth $2 million and the husband dies first, leaving his $2 million to his wife.  The wife will now have a $4 million estate but only a $2 million exemption.  "Consequently, if she dies this year and leaves her $4 million to her children, ‘her estate will be hit with a federal estate tax of about $900,000 (based on 2008 tax rates)," Mr. Olivieri says. "A similar problem arises if the entire $4 million is owned by the husband and the wife dies first."

To avoid this troublesome issue, "many married couples expend considerable time, effort, and money to avoid wasting their combined federal exemptions," says Mr. Olivieri. "But if the exemptions were portable, none of this would be necessary."  He also adds that this would not effect state-level taxes and that couples would still want to take any necessary precautions for those.