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Estate Tax Planning in Florida and Portability

Estate Tax Planning and Portability

The Heckerling Institute of Estate Planning in Orlando, Florida, is a sort of “Superbowl”in the world of Florida estate planning. This is where the upper echelon of “tax geeks” got together not too long ago and addressed the question of estate tax planning in Florida, and other states, as it relates to this question of portability. This discussion is now even more interesting given the recently enacted Tax Cuts and Jobs Act of 2017 (TCJA).

We all like things portable, right?  

From our smartphones to our computers, we prefer that our technology (and our life) trends stays as simple as possible. Often this means that we like things to be portable.  The idea of portability keeping things simple actually applies to the complicated subject of estate planning. In this realm, portability means that the estate tax exemption of one spouse is portable OR that the other spouse can take it with them. We’ll get more into that in a minute.

The concept of portability is very applicable to the vast majority of larger estates (those that are subject to federal estate taxes). Thus a basic understanding is important in order to do effective estate planning in Florida.

This article will look closely at the question of estate tax planning in Florida and portability as it relates to the amount that is exempt from estate taxes from one spouse to another. If this sounds confusing, you’re NOT alone. Portability is a concept that is unclear to many people (even those with larger estates) including many lawyers.

The Federal Estate Tax Exemption

The federal estate tax is defined as a lump sum tax imposed by the federal government (as opposed to the state government) that is based on the value of the gross estate at the time of the estate owner’s death. This is a heavy tax that is due within 9 months of the estate holder’s death AND it currently is calculated based upon a percentage of the gross value of the “taxable” estate. 

A simplified approach to calculating the gross estate involves basically adding up the market value of all assets including any death benefits payable from life insurance, etc. The current estate tax rate is approximately 34-40% and this would NOT include state inheritance taxes which are assessed in a handful of states. 

The good news, as it relates to estate tax planning in Florida is, at least as of this writing, that the federal estate tax doesn’t kick in until your estate has surpassed a certain value. As of this writing, that now increased individual estate tax exemption, factoring in adjustments for inflation, as approximately $11,200,000 AND for a married couples the exemption is now $22,400,000.

Keeping in mind the idea, as described above, that you get double the estate tax exemption as a married couple, the estate tax exemption is commonly understood as the amount that EACH spouse may pass to a “non-spouse” without incurring the federal estate taxes.

Spouses may pass an unlimited amount to each other and also each may pass the full exemption amount to third parties.  

The concept of estate tax planning in Florida as it relates to portability is therefore the ability of a widow or widower to take the estate tax exemption of a deceased spouse and add it to his/her own estate tax exemption.

So, a surviving widow can add approximately $11.2 million of exemption to match her own and this results in exempting approximately $22.4 million from federal estate taxes.

The History of Federal Estate Tax Planning and Portability

The concept of portability entered into the estate planning world in 2011 in order to, in my opinion, prevent massive estate planning fallout that occurred when spouses failed to do adequate estate planning.  Before portability, it was necessary to either bequeath assets to a non-spouse or put the estate assets in a “bypass” or credit shelter” trust.

The Lessening Importance of the Bypass Trust

Since portability became final back in 2015, after the law was enacted on an “interim basis” since 2011, much debate has ensued among estate planning professionals.  The key question is whether the bypass trust or credit shelter trust should still be used.

Some estate planners believe that planning through bypass trusts or credit shelter trusts is no longer necessary because portability is now available in “generic” form, and that it automatically provides advantages such as a “step up in basis” of the assets passing from the deceased spouse.

Portability is also touted for working well for assets that are not easily managed inside of a credit shelter trust or bypass trust such as retirement account proceeds or a homestead.

The Requirements and Limits of Portability

In order to take advantage of portability, the surviving spouse must file an estate tax return within 9 months of the date of death of his/her spouse.

Still, other estate planning attorneys are reluctant to give up old planning tools because they believe there are still “oddball” situations in which it may be preferable.

Portability doesn’t include the GST Tax which is an estate tax for any amount exceeding 11,200,00 million, as of this writing, assessed if assets are transferred to grandchildren or more remote generations.

A bypass trust or credit shelter trust may be utilized for these “oddball” situations.

It is my experience that most people crave a simple Florida estate plan, and portability simplifies things a bit.

Portability allows for options at the time of a spouse’s death, and your estate plan should allow for such options to be considered by the estate appointees at the time of a spouse’s death in order to avoid unintended consequences.

Why Customized Florida Trust Planning Remains Vital

None of this is to say that dynasty trust planning in Florida is no longer necessary or that professional legal advice is not essential because this would be reckless.

On the contrary, estate planning with a Florida revocable living trust is still highly preferable to the probate process in Florida and planning for things like special needs disability in Florida, asset protection in Florida for beneficiaries in Florida, and long term medical care planning in Florida, is all enhanced through fine tuning your Florida living trust plan.

As always, each estate planning situation is unique and lends itself to customized planning. Next time you look at your smartphone, remember that your estate plan is also portable.

Steve Gibbs, Esq.

2 comments… add one
  • Sandra Bruner July 16, 2021, 3:37 pm

    I have inherited money from my cousin. I want to spend some of it on a 529 Plan for my 16 month grandson. I am looking at the Ohio College Advantage Plan as it keeps appearing on the many 529 Plan ratings that are published on the internet. Though I have read a lot about these plans I still feel it would be beneficial to speak with someone like yourself to guide me through the various options. Can I set up a meeting with you to discuss these matters.
    Sincerely, Sandra Bruner, PhD

  • gibbslawfl July 19, 2021, 10:42 am

    Hello Sandra and thanks for commenting. Although, I would welcome the opportunity to discuss estate planning with you, it looks like you may be in Ohio and I do not practice there. Also, it looks like you may need a financial advisor for this task and I recommend you seek one in your area.

    Best, Steve Gibbs, Esq.