So we now have a $5 million estate tax exclusion, and it is important to emphasize the fact that this $5 million exclusion is per person, so married couples could combine their respective exclusions and enjoy a $10 million estate tax cushion. Now let’s say you were to sit down with your estate planning attorney to devise an estate plan based on the expectation of a $10 million estate tax exclusion between you and your spouse. If one of you was to pass away, would you still have all $10 million to work with?

The answer to this question involves the issue of portability. Prior to the passage of the new tax relief legislation in December, the estate tax exclusion was not portable. This means that if you were to pass away your estate tax exclusion would pass away along with you. There isn’t much about the estate tax tax that could be considered fair by any logical barometer, and this lack of portability never made sense.

These days most families are headed by a husband and wife who both work, earn, and invest. When a married couple sits back and evaluates their shared assets they can clearly recognize the fact that each of them participated in the accumulation of these resources. So the estate of a married couple is comprised of assets that were earned by two people and these combined resources are taxable, yet upon the death of one of the partners his or her exemption was no longer available to the other.

The new tax measure has corrected this inequity and the estate tax is now portable between married couples in 2011 and 2012. Bypass trusts were formerly the solution to this lack of portability and it would seem as though they are no longer necessary. However, we have no idea if this portability will persist beyond the sunset of this new measure at the end of 2012, so it’s hard to take anything for granted for the long term.

Tags: Elder Law, Estate Planning, estate tax