This means that any unused federal gift or estate tax exemption can be transferred from the deceased spouse to the surviving spouse.
Ag Web’s recent article entitled “It's So Important to Elect ‘Portability’ for Your Farm Estate” explains that this is an election that has to be made proactively, after the death of the first spouse.
You’ll have to file a Form 706 federal estate tax return within two years of death at the latest, even though there's no tax owed. Under current federal law, portability is available for farm couples to implement through the end of 2025. This the opportunity then “sunsets,” and the provision will no longer be available.
This could really be a multi-million-dollar mistake, if it's not elected.
Even after two years, the surviving spouse can elect portability (through the end of 2025). However, he or she will incur considerable expense in the process.
You can still file for it, but you’ll pay a user fee that costs about $12,000. You’ll then have to pay an attorney to prepare the paperwork, and that’s probably another $10,000 to $15,000.
As a result, you’re going to pay between $25,000 and $50,000. However, if you’d just filed it within two years of your spouse’s death, you could have avoided those expenses.
Before portability was an option, it was common for husbands and wives to each own about the same amount of assets, or at least the amount of assets that could fully soak up and use each person’s exemption.
Therefore, many farm families are used to seeing farms titled one-half with the husband, one-half to the wife – as tenants in common not husband and wife jointly. That is because in the old days, if you didn't use the wife's exemption to cover her assets (if she died first), it would just expire.
Now, with portability, all the assets can flow through to the surviving spouse.
At the first spouse’s death, the survivor files that portability election and then has two exemptions to cover assets.
Reference: Ag Web (April 18, 2022) “It's So Important to Elect ‘Portability’ for Your Farm Estate”