Portability in DC

Portability allows married couples to be treated as a single financial unit. Under this concept, a surviving spouse can use a deceased spouse’s exemption. Unfortunately, portability in DC is not currently recognized. This makes it important to work with a knowledgeable estate planning attorney who can help you make sure you have a plan that is best for you.

What is Portability?

Portability is a concept that was introduced with the 2013 estate tax reform. It allows married couples to be treated as one financial unit. Prior to portability, if an individual passed away, their unused exemption amount died with them. In other words, if they have five million in exemption and the spouse had five million in exemption, at the first spouse’s death everything went to the surviving spouse. Often that transfer would have been estate tax-free at the death of the first spouse because of the use of the marital deduction allows for an unlimited amount of assets to pass between spouses either during their lifetime or at death as long as both spouses are U.S. citizens and residents.

However, the concept of portability allows an individual to use a deceased spouse’s unused exemption as long as an estate tax return has been timely filed to preserve that portability. Meaning couples now, if the planning is done correctly, can use 22 million or the full amount of the exemption off their cumulative estates at death. It is important to note that the DC estate tax system does not yet recognize portability and it is unclear whether they will in the future. Therefore, in DC, it is necessary for estate tax planning to occur prior to death in order to maximize both exemptions at the death of the first spouse.

The Deceased Spouse’s Unused Exemption in DC

The deceased spouse’s unused exemption is the amount of the exemption they have not used off the taxes at the death of the first spouse. For example, an individual dies with 15 million. Prior to portability, all of the assets would be left to the surviving spouse.

Now, with the concept of portability, as long as an estate tax return is timely filed then the surviving spouse would be able to preserve the $11.2 million exemption from the first spouse and would also be able to use that in combination with their own 11.4 million exemption. This would greatly minimize the exposure to estate taxes at the death of the second spouse.

Process for Obtaining an Exemption

The requirement for preserving an unused exemption is that a timely estate tax return must be filed at the death of the first spouse even though there would be no estate taxes due. There are also some requirements based on citizenship and residency that may prevent the use of portability. Therefore, it is important for individuals to do some estate tax planning prior to death while they maintain the capacity to see what their exposure to estate taxes would be after death.

Talk to an Attorney About Portability in DC

Currently, DC does not recognize portability. This means that an individual must work with an attorney prior to death to have the necessary plans in place for a surviving spouse to use their exemption. To learn more about your options, call today for a consultation.