Wealthy individuals in the United States can reduce their estate-tax bill as a result of a provision that allows them to use their deceased spouses' estate-tax exemption.
"It's something that can help someone caught dying before they did any planning, but certainly shouldn't be something you count on," according to John Olivieri, a partner in the private clients group in the New York office of White & Case LLP.
Upon the death of one spouse, couples would put up to the exemption amount in a trust, which would be structured to allow distributions to the surviving spouse, Olivieri said.
"Portability is meant to address the perceived problem that although there is an estate tax exemption, unless you do some level of sophisticated planning, a married couple could lose the benefit of one exemption," Olivieri said.
Even if the credit is extended, the carryover amount may change if the tax thresholds are altered, Olivieri said.
It's unclear whether surviving spouses can use their inherited exemptions first, so a better way to preserve portability in the above example would be for the wife to give away the full $7 million before she dies, Olivieri said.
Widow or widowers who remarry should remember that portability only applies to the last deceased spouse, said Olivieri.
Let's say, for example Michael, who had a $1 million unused exemption carried over from his wife, were to remarry someone who died this year or next, and who had used all of her exemption amount through gifts during her life and upon death totaling $5 million, he would only have his individual $5 million exemption.
If he died before she did, he would maintain the $1 million unused exemption, said Olivieri.