Portability allows a surviving spouse to take advantage of a deceased spouse’s unused federal gift and estate tax exemption in several ways:
- The main advantage of portability is simplicity. It lets married couples make the most of both of their exemptions without the need for credit shelter trusts or other estate planning maneuvers.
- Another, less obvious, advantage of portability is planning for retirement benefits.
Generally, leaving retirement benefits to your spouse is the most effective way to maximize his/her tax-deferral benefits. Why? Your spouse has the choice of three distinct benefits: roll those benefits over into his or her own IRA; name new beneficiaries; and stretch the deferral period over many years.
Other strategies don’t present these options. For example, if you leave retirement benefits to a credit shelter trust, the funds will have to be distributed sooner and some of the benefits of tax deferral will be lost. Portability allows you to leave retirement benefits to your spouse without wasting any estate tax exemptions.
If you have significant assets in IRAs or other retirement plans, we can help you weigh the potential benefits of portability against those of other strategies. Contact me at firstname.lastname@example.org or your Berdon advisor.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.