What is 706 portability?

What is 706 portability?

Portability allows a surviving spouse the ability to transfer the deceased spouse’s unused exemption amount (DSUEA) for estate and gifts taxes to a surviving spouse, so long as the Portability election is made on a timely filed federal estate tax return (IRS Form 706). …

What is a portability trust?

Planning in advance by including “credit shelter trust” provisions in each spouse’s will or living trust. Waiting until after one spouse dies and making a special tax election to “transfer” the deceased spouse’s applicable exclusion to the surviving spouse. This is sometimes referred to as a “portability” election.

What is the advantage of an AB trust?

Advantages of an A-B Trust While the surviving spouse can access the bypass trust, if necessary, the assets in this trust will bypass their taxable estate after they die. After the surviving spouse dies, only the assets in the A trust are subject to estate taxes.

Are AB Trusts obsolete?

AB Trusts are not entirely obsolete, though they are much less useful than they once were because of changes in estate law over time.

Is portability going away?

When President Obama signed the American Taxpayer Relief Act (ATRA) into law back in 2013, this law made the portability feature permanent in the way that it does not need to be renewed. In fact, Congress must take active steps to overturn it in order for it to go away.

When did portability become permanent?

The concept informally known as “portability” is now permanent as a result of the enactment of the American Taxpayer Relief Act of 2012 (the “2012 Act”). Portability allows a surviving spouse to use a deceased spouse’s unused estate tax exclusion (up to $5.25 million in 2013).

What is better than an AB trust?

For most families, a simple probate-avoidance trust is better than the much more complex AB trust. A simple revocable trust is, basically, a substitute for a will. It isn’t designed to continue past the death of a spouse; instead, the trust assets are quickly distributed to the people who inherit them.

Does AB trust get a step up in basis?

Although the assets allocated to the B trust will receive a step-up in tax basis upon the death of the first spouse, those B trust assets will not receive another step-up in tax basis upon the death of the second spouse.

What happens if you don’t file a 706?

This portability election increases the total exclusion available to the surviving spouse by the amount of the deceased spouse’s unused exclusion. If you don’t file the 706 at the first death, you cannot elect to port over this remaining amount.

Is an AB trust a Bypass Trust?

A bypass trust, or AB trust, is a legal arrangement that allows married couples to avoid estate tax on certain assets when one spouse passes away. The first part is the marital trust, or “A” trust. The second is a bypass, family or “B” trust. The marital trust is a revocable trust that belongs to the surviving spouse.

What is the difference between an A trust and AB trust?

The “A Trust” often called the “Marital Trust“, “Marital Deduction Trust” or “QTIP” Trust holds and amount that the deceased spouse’s exemption cannot shelter from tax and the “B Trust” or “Credit Shelter Trust,” “Family Trust,” or “Bypass Trust” holds the amount that the deceased spouse’s exemption can shelter.

How much can you protect without using ab trust planning?

For example, for federal estate tax purposes, at today’s $5.49 million exemption amount, a couple can protect $10.98 million without using AB trust planning. As a result, many of your clients may want to implement this simplified approach, often working with a joint trust established by both spouses rather than two separate trusts.

Is an AB Trust a good strategy for estate tax exemption?

Keep in mind that some states haven’t adopted portability, and many states have implemented estate tax legislation with significantly lower exemption amounts. As a result, the traditional AB trust strategy remains a valid solution for preserving the availability of the state tax exemption between spouses.

How does portability affect trust planning?

The current federal portability provision has given rise to a more simplified approach to trust planning. This provision allows the first spouse to leave all of his or her assets to the surviving spouse.

Can a married couple have an AB trust in Hawaii?

In addition, since Hawaii is currently the only state among the states that collect an estate tax that has made its state estate tax exemption portable between married couples, AB Trust or ABC Trust planning may be required in these states in order to take advantage of both spouses’ state estate tax exemptions.