Portability and Estate Tax: What to Know

For anyone in the Summit area who expects to leave a high net worth estate to loved ones, it is essential to learn more about federal estate tax and potential ways of minimizing estate tax. One way that estate tax might be minimized is through something known as “portability.” This is a term that can apply to an estate of one spouse after the other spouse has already died. While the concept itself is relatively straightforward — and our Summit estate planning lawyers can explain — the term can be confusing. Our firm can clarify what portability means and how it works when it comes to estate tax in New Jersey.

Understanding Federal Estate Tax

To have a clear understanding of what portability means and how it works, it is essential to understand the applicability of estate tax first. There is no New Jersey estate tax, but there is a federal estate tax that applies to New Jersey residents (and any US residents) who leave an estate with a value above the exempt amount. The exempt amount increases annually, so the specific amount will be determined in the year of the owner of the estate’s death if the death occurs in the future. For reference, the present exempt amount in 2025 is $13,990,000.

What this means is that an estate tax will be due on your estate — and will need to be paid out of the estate, by the estate — if your estate is valued over $13,990,000 if you died this year. The exempt amount will likely increase slightly for each following year.

What Does Portability Mean? 

The “portability” of estate tax permits a surviving spouse to inherit any unused amount of their spouse’s estate tax exemption. In other words, if one spouse dies and does not use the full exemption ($13,990,000 if that spouse dies in 2025, for example), then the surviving spouse can inherit the unused amount of the deceased spouse’s exemption. Depending on the situation, the portability of estate tax can allow a surviving spouse to gain up to double the individual exemption amount. Portability does not apply to other family relationships, such as parents and children or otherwise.

It is important to know that you do not automatically get portability of the estate tax exemption. Generally speaking, the estate of the deceased spouse must file an estate tax return with a portability election. Portability is almost always beneficial for high asset households, but there may be some circumstances in which electing portability might result in more complications than benefits, based on the specific facts of the case. It is an issue that you should discuss in detail with an estate planning attorney.

Contact a Summit, New Jersey Estate Planning Attorney 

If you have any questions about estate tax or any other aspects of estate planning in New Jersey, one of the experienced Summit estate planning attorneys at Dempsey, Dempsey & Sheehan can speak with you today. We can answer any questions you have and can begin working with you on your estate planning needs. Contact us for additional information.

Source:

irs.gov/businesses/small-businesses-self-employed/estate-tax