- The first-passing spouse may have their share of assets distributed by the surviving spouse in a manner contrary to their intentions or desires.
- The assets of the first-passing spouse may be reached by the future spouse's succeeding partners or creditors.
- A surviving spouse will lose the first-passing spouse's unused exemption amount if they remarry and their second spouse predeceases them.
- Appreciation in assets passed to the surviving spouse will consume more of the exemption in the surviving spouse's estate.
- Finally, there is always the possibility that portability could by altered or eliminated.
Over-Reliance on Portability May Have Negative Consequences
Portability of the federal estate, gift and GST exemption is a welcome concept for most taxpayers. Prior to the introduction of portability, taxpayers anticipating significant wealth to be transferred at death had to engage in complicated trust structures designed to fully utilize the exemption of the first-passing spouse before passing the remainder of the estate to the surviving spouse. With portability, couples who failed to engage in such traditional estate planning techniques no longer stand to forfeit the first-passing spouse's exemption; it simply becomes inherited by the surviving spouse.
Does this mean that traditional estate planning techniques should be eschewed? No. Although couples doing so no longer risk forfeiting half of their combined exemption, failure to engage in traditional planning techniques can have significant adverse consequences:
While it may be preferable for certain couples to eschew traditional estate planning techniques in favor of reliance upon portability, couples considering this option would be well-advised to consider the potential impacts of doing so before making a decision.
See Pepper Hamilton LLP, "Should We Rely On Portability?" JD Supra Law News (Nov 1, 2013).
Posted by Conan Yuzna, Associate Editor, Wealth Strategies Journal.
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