Many different possibilities existed regarding the future of the estate tax throughout 2012. If there was no legislation passed to change existing laws in 2013 the maximum estate tax rate would have gone up to 55%, the exclusion would have been reduced to $1 million, and the estate tax would no longer be portable between a husband and wife.
Because of the enactment of the American Taxpayer Relief Act of 2012 we have a different set of circumstances. The exclusion has been set at $5.25 million this year, the top rate is 40%, and the estate tax exclusion remains portable.
What does “portability” referred to in this context? Before 2011 a surviving spouse could not utilize the estate tax exclusion that was due to his or her deceased spouse.
Due to provisions contained within the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that was passed late in 2010 the surviving spouse could in fact use the exclusion that his or her deceased spouse was entitled to in 2011 and 2012.
In the estate planning community this ability to utilize the remaining exclusion of a deceased spouse is called “portability.”
One thing to be aware of is the fact that there is an unlimited estate tax exemption between a husband and wife. However, this does not mean that you need not plan your estate with tax efficiency in mind if you plan on leaving everything to your spouse.
If it exceeded the exclusion amount the estate of your spouse would be subject to the estate tax so you would just be postponing things. It is best to address the matter while you are both still alive.