Filed Under:Life Insurance, Life Planning Strategies

FSP Speaker Sees Worms in Estate Tax Portability Feature

PHILADELPHIA -- The estate tax portability provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 could trip up advisors who fail to think ahead.

Kathleen Sherby, a partner at Bryan Cave L.L.P., St. Louis, talked about the Tax Relief Act provision here earlier this week at a clinic organized by the Society of Financial Service Professionals (FSP), Newtown Square, Pa.

Among them: The lack of portability for the generation-skipping transfer (GST) tax, a federal tax imposed on gifts and transfers in trust to or for the benefit of (among others) grandchildren; uncertainty as to the long-availability of portability, given the 2012 sunset provision; and (as regards the process issue) the requirement that an executor of the predeceased spouse's estate file an estate tax return and make an election to permit the surviving spouse to use the unused exemption.

Because of these issues, said Sherby, clients may be well advised to use a credit shelter trust in place of the portability feature. Also referred to as an A/B trust, bypass trust or unified credit trust, the vehicle lets a surviving spouse avoid estate tax at a first spouse's death by using the available federal estate tax credit or applicable exclusion amount.

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Nichole Morford

Nichole Morford
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