Posted on July 3, 2011


It seems like all I hear or read from other lawyers are all of the problems and uncertainties that exist in Portability Planning in the client’s estate plan. Last week I listened to another attorney go on and on about the best course of action to take: “Keep Doing Things The Way We Have Always Done Them! Portability has problems!!!”

Living in the past is not usually the best solution for our clients. It is true that there are unknowns in Portability Planning. There are also some situations where it is not appropriate for that particular client. However, for most clients who have non-taxable estates, planning to use the deceased spouse portability exemption is the BEST planning available to them. At a minimum, it ought to be actively considered in the planning process.

Over the next couple of weeks, I will examine the potential problems of portability planning and the advantages and benefits as well.

Problems of Portability Planning

There are six primary arguments I hear attorney’s make when they speak against planning for the surviving spouse to use Portability

1. “It is only a two year law. Portability is only possible if the client dies in 2011 or 2012. Since that is not likely, why spend much time on it. Who knows what the law will be in 2013.”

While it is certainly true that the law may change in 2013, not everyone will live to see that day. But we create estate plans to be in place when client’s die. They need to be accurate and subject to the best information we have available at the time. It is not a good response to say, “I did not think you were going to die today?

2. “The law is ambiguous and there are no regulations and cases to help us interpret the law.”

This one really upsets me because it is one of the reasons lawyers have such a bad reputation among the general public. Attorneys are generally perceived as being too conservative. In this case, however, the attorney, along with the rest of the client team of advisors, needs to weigh the risks and rewards of the strategy. As we will discuss in later posts, the benefits for some clients, clearly outweigh the risks.

3. “Use of the Portability Exemption is not automatic. It requires you to file an estate tax return.”

True again. But at what cost? The cost of filing the return may be very small compared to the taxes lost for failing to tax advantage of Portability. In addition, there is the possibility the IRS will create a 706A short form as an alternative to the standard 706 Estate Tax Return currently required.

4. “There is no statute of limitations for examining the estate tax return.”

There is also no statute of limitations if you don’t file a return at all. However, if a return is filed, the IRS may only examine it after three years for a limited purpose and not to assess taxes. There are no limitations for an unfiled return.”

5. “Although the surviving spouse estate tax exemption is indexed for inflation (also only for the next two years), there is no inflation adjustment for the deceased spouse Portability Exemption.”

This is a risk to be considered in implementing Portability after the first spouse dies. It is not a reason not to plan. For many clients, this will not matter. It is good information to know, but it does not stop us from planning to use Portability.

6. “Portability only applies to Estate and Gift Taxes.. It does not apply to Generation Skipping Transfer Taxes.”

Finally, an argument that makes sense! Therefore, if GST planning is important to the client, you should not use Portability as a planning option.

In our next post, we will discuss the many positive benefits for Portability Planning for clients.