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This is a question about the federal estate tax in the United States.

Suppose a married man died in (let's say) 2021, when the estate tax exemption was $11.7 million. He leaves his entire estate to his wife taxfree. She dies in 2023, when the exemption is (say for simplicity) still $11.7 million. When the wife dies, she is entitled to both his and her exemptions, for a total of $23.4 million.

Now suppose instead that the man dies in 2021, leaving everything to his wife taxfree, and that she dies in 2026, after the exemption reverts to $5 million.

Once again, she is entitled to both exemptions. Does her total exemption amount to $11.7 million plus $5 million, or does it amount to $5 million plus $5 million? In other words, is the value of the ported exemption equal to the value of an exemption at the time of the first spouse's death or at the time of the second spouse's death?

WillO
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1 Answers1

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The estate will be subject to the law at place at the time estate became to exist. I.e.: it will be subject to the law that was in place when she died.

We don't know what will happen until 2026. The power balance in the US may shift in any direction by then multiple times. There are at least two election cycles until then - 2022 and 2024. The Congress may decide to let the sunset happen, or extend it, or make the current state permanent, or make any other change.

Assuming that the sunset happens, if she applies for her husband's exemption now - she'll have the 11.7M exemption. If she then passes after the sunset - she'll have the additional 5M exemption of her own.

The portability election must be made on the timely filed estate tax return of the first deceased spouse.

See Form 706 Part 6 Section D.

littleadv
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