Legal Tip of the Week – 2/24/17!

In the past year, I have seen several situations where a very young spouse (also a parent of young children) passes away unexpectedly.  Families who were reasonably affluent prior to the death of their loved one sometimes come into a more wealth due to life insurance payout(s).  From an estate planning perspective, it is a good idea for the surviving spouse to elect for something called “Portability” on a timely filed federal estate tax return.  Portability refers to the ability of a surviving spouse to tack on the deceased spouse’s unused [gift] exemption (DSUE) to their own lifetime exemption[1].  This allows for more of the couple’s money to pass onto their children, federal or state estate tax-free, upon the surviving spouse’s death.

The strategy is recommended even for young surviving spouses who are not extremely wealthy since the likelihood of his or her estate appreciating over the course of the lifetime is high or if there is a decrease in the federal exemption during this time.

It is important to note here that if the surviving spouse who elected portability is now considering remarriage, it would be prudent to consult with an estate planning attorney immediately.  Portability only applies to the last deceased spouse’s unused exemption.  Therefore should the second spouse die after using up his or her lifetime exemption, then the surviving spouse is out of luck with respect to the DSUE.

[1] For 2017, the federal lifetime exemption is $5,490,000