← FarmCPA Home

Portability Revisited

By: | Trackback URL | No Comments

June 3rd, 2014

With the “permanent” changes in the estate tax laws from about 2 years ago, we now have a permanent provision called portability.  This allows for the unused portion of someone’s estate to be “ported” over to the surviving spouse to be used on their final estate tax return.

Example: John Bean passes away worth $1 million in 2014.  The lifetime exclusion amount is $5.34 million.  The unused $4.34 million is “ported” over to Jane Bean who can be worth $9.68 million (if she died in 2014) and not owe any estate taxes.

In order to elect portability, the executor must file an estate tax return even if no estate tax is due.  This can result in some administrative costs, and in many cases, it is worth making the portability election (especially if the estate is under $5.34 million).

The assumption is that portability is better than placing assets into a “credit shelter” trust for the benefit of the surviving spouse.  In many cases, this assumption is incorrect.  The amount ported over to the surviving spouse does not increase with inflation.  Therefore, the longer that the surviving spouses lives past the first spouse, the greater the income and estate tax savings from using a credit shelter trust.

Example: John & Jane Bean are worth $10.680 million when John passes away in 2014.  The executor can either set up a $5.34 million credit shelter trust for Jane or elect portability and pass a full exemption onto Jane.  We will assume that Jane passes away 10 years later, the estate tax is at 40% and the capital gains tax is at 23.8% with no state income or estate taxes.  We will assume a 2% inflation rate and a 5% rate of return on the assets.  After 10 years, if all of assets are liquidated and capital gains taxes are paid, by using a credit shelter trust, the final estate will have an extra $542,700 of value versus electing portability.  This is primarily due to the rate of return on assets values being higher (5%) than the rate of inflation (2%).

If farmers combined estate is currently over $10 million which in many states is less than 1,000 acres of good farmland, then it is very important to interact with advisors that understand the benefits of using a credit shelter trust versus simply assuming portability is the best option.

If anybody is interested in a more detailed analysis of these options, please fill out the comment box below and I will send you the information:

 

 

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

More Posts - Website

Follow Me:
Twitter

← FarmCPA Home

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Subscribe to this blog by:

Previous Posts

Events

View upcoming speaking engagements and other networking events for Paul Neiffer and CliftonLarsonAllen’s agribusiness team.

See All

  • Twitter Feed

    Just saw a bighorn sheep eating grass in the bank next to the freeway. Less than 30' from my car. 2 weeks ago

    After 82 days in a rental car my wife has talked me into a cruise. We leave Thursday for Miami. Can't wait 2 weeks ago

    Will final ear weights set a new record. If so final corn yield will be going higher (unless we get an early hard freeze) 2 weeks ago

    Getting Train the Trainer info on the new Dairy Margin Protection program today in Denver. Learning a lot so far 3 weeks ago

    Has the chatter on an early freeze disappeared or is it just dormant 3 weeks ago

    Ag Economy; Policy Issues; and, Political Notes: farmpolicy.com/2014/09/05/ag-… 3 weeks ago

    Nothing prettier in August than to see rain water on the ground. At least the crops like it 1 month ago

    If tenants have compensated landlords fully for cash rents over the last few years, it will be much easier to get them to accept lower rents 1 month ago

    Is this Russia / Ukraine a case of buy the rumor / sell the news 1 month ago

    Nice rain and warmer temps yesterday should make good growing conditions 1 month ago