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How portability affects estate planning for married couples

District of Columbia couples who created their estate plans a few years ago may want to consider updating or replacing it. In the past, each spouse had a certain amount of assets that could pass to heirs and beneficiaries free of federal estate taxes. Now, however, the concept of "portability" has changed how married couples can use the federal estate tax exemption during estate planning.

For 2015, each individual can pass on assets tax free up to $5.43 million. In the past, it would typically take two trusts to ensure that a couple got the maximum benefit from this exclusion. A couple would use the trusts to combine their exemption amounts for a total of $10.86 million. However, when the first spouse passed away, the other spouse was still limited to only the maximum of his or her exemption.

Now, when the first spouse passes away, any "leftover" exemption from that spouse can be added to the total for the surviving spouse. For example, if the first spouse's estate was worth $3.43 million, the unused $2 million may be added to the other spouse's exemption. This would give the surviving spouse a total of $7.43 million worth of assets to be distributed free from federal estate tax upon his or her death.

Estate laws are always changing, along with a family's dynamics. It is a good idea for all District of Columbia residents to review their estate plans periodically to ensure that they are still passing on the maximum amount of their assets and that the documents still conform to their wishes. Married couples also need such a review in order to take advantage of portability. Estate planning is a fluid process and often does not end with the initial signing of the documents.

Source: USA Today, "Your estate plan: Be aware of new laws", Joseph A. Clark, Sept. 13, 2015

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