Episode summary
Talking Trusts & Estates for Advisor: Using Portability as an Estate Planning Strategy
Summary
Portability lets a surviving spouse inherit the unused federal estate tax exemption of a deceased spouse, replacing an older “use it or lose it” system. The guest argues that this change made estate planning more flexible, but also encouraged some families to delay or skip more traditional planning.
The guest emphasizes that portability is not a full substitute for estate planning. It does not apply to the GSTT exemption, so it does not solve transfer-tax issues for assets intended for grandchildren or later generations. It also is only a federal rule, so state estate taxes may still apply depending on where the family lives; the guest notes that only a couple of states mirror the federal rule closely.
A surviving spouse must elect portability by filing Form 706 timely, completely, and properly after the first spouse dies. The guest stresses that this is not automatic, even when no estate tax is due, and failure to file can permanently forfeit the unused exemption. For advisors, the guest recommends planning ahead, considering whether other tools like shelter trusts are better, and remembering that portability can create flexibility but also future uncertainty if exemption rules change.
Key takeaways
- The guest says portability transfers only the unused federal estate tax exemption, not the GSTT exemption.
- The guest says Form 706 must be filed timely and correctly to preserve portability; it does not happen automatically.
- The guest argues advisors should use exemption planning during life rather than count on future portability rules that could change.
- The guest says state estate tax rules can diverge from federal portability, so a federal election may not eliminate state tax exposure.
- The guest says portability is a tool, not a replacement for traditional estate planning, especially for blended families and complex transfer plans.
Notable quotes
“portability allows a surviving spouse to essentially inherit the unused federal estate tax exemption amount”
“it is not a replacement for traditional estate planning”
“It does not cover the GSTT, the generation skipping transfer tax exemption amount”
“It must be filed timely, complete, properly prepared and submitted into the IRS to qualify”
“My view is you use it up when you have it. You don't wait for the future”
How the episode opens
Hello, I'm Susan Lip, editor-in-chief of Trusts & Estates, and I'm speaking with Jamie Hopkins, the CEO of Bryn Mawr Trust Advisors LLC and Chief Wealth Officer of Bryn Mawr Trust. And today we'll be discussing the estate planning tool of portability, which is the ability of a surviving spouse to use the unused estate tax exemption of a deceased spouse. Portability can present complex issues, um some of which were discussed in the article Pondering Portability in the June issue of Trusts & Estates, and Jamie will help explain some of these issues today.
So, let's get started with Jamie, can you just briefly explain the concept of portability?
Absolutely, and that's always a good place to start when we hear these terms. You probably generally understand what portable means, the ability to move it around. And this was one of the biggest changes really in estate planning over about the last 20 years.
At its core, you kind of mentioned it, portability allows a surviving spouse to essentially inherit the unused federal estate tax exemption amount that was unused of the deceased spouse who passed away. Um before portability, right, it was really a use it or lose it system, meaning that if the first spouse didn't use up their whole exemption through planning and shelter trusts and giving things away, it was gone. And when this rule changed though, it was interesting because it one made kind of a really good value proposition for people that we could keep this large exemption amount for both spouses.
But the same time, it actually kind of made estate planning less important in most people's minds because they had all this flexibility and optionality, and that has led to what I would say is a downturn in the number of people getting their estate plans in order and doing proper planning.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- estate planning
- portability
- surviving spouse election
- portability limitations
- advisor decision factors
Companies and tickers mentioned
- Bryn Mawr Trust
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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