Pros and Cons of Portability
Starting with deaths that occurred in 2011, a surviving spouse can carry over the unused portion of the estate tax exemption of the deceased spouse. This is known as Portability. While Portability was originally only applicable if both spouses passed away in either 2011 or 2012, with the passage of the American Taxpayer Relief Act on January 2, it was made permanent (which really means that it is no longer scheduled to expire). So the question now is whether or not to rely on Portability as your sole estate tax planning tool. To answer that question, I think it is important to look at the Pros and the Cons of such a strategy.Pros:- Portability allows you to avoid the costs associated with the creation of a credit shelter trust- Portability allows the surviving spouse continued control of all assets- Portability allows for a step up in basis on all assets at the death of the surviving spouseCons:- Portability requires the cost of preparing and filing an estate tax return- Portability is lost if the estate tax return is not timely filed- Portability is lost if surviving spouse re-marries- Portability does not apply to the Generation Skipping Tax- Portability does not allow you to shelter the appreciation of assets- Portability provides no creditor protectionWeighing the pros and cons, it is my opinion that portability is a good back-up if no planning has occurred, but a properly drafted credit shelter trust is still the preferred way to ensure the proper use of both spouses exemptions and provides many more ancillary benefits.