Portability Under the New Estate Tax Law

As many of you know, new tax legislation will be taking effect on January 1, 2011.  Among other things, the new law raises the estate tax exemption to $5 million per individual and $10 million for a married couple.  One provision that you may not be aware of is a new break for the surviving spouse.  Beginning in 2011, the surviving spouse can add any unused exemption from the decedent’s estate to their own.  Thus, if spouse #1 died with an unused exemption of $3 million (having left $2 million outright), spouse #2 can add that $3 million to his/her own available $5 million exemption.  Therefore, spouse #2 now has an $8 million exemption amount for estate tax purposes.

Until now, without proper planning, the first spouse’s exemption would be lost.  With the new law, the only prerequisite to transfer any unused exemption amount is for the decedent’s estate to filed an estate tax return expressly transferring that amount to the surviving spouse.

Even if you believe your estate is well below this new exemption level, there are various remaining issues that an estate planning attorney can help you with.  Among them is the fact that there is still a Massachusetts estate tax exemption of $1 million.