Summer 2011, Vol. 19, No. 3

Two Minute
Legal Update

ROBERT T. NAPIER AND ASSOCIATES, P.C.
www.napier.com

200 S. Wacker Drive, Suite 750, Chicago, IL 60606 / Phone: 312-756-1111 / Fax: 312-756-9000
1900 East Golf Road, Suite 950, Schaumburg, IL 60173 / Phone: (847) 995-0011

You, Cindy Crawford, and
Portability

Some years ago Cindy Crawford burst upon the modeling world as a natural beauty from DeKalb, Illinois. At first blush, she was a sight to behold. But even Cindy Crawford acknowledges that she does not wake up looking like Cindy Crawford.

Similarly, a new federal law has introduced a novel estate planning concept called portability. A quick peek may make you think that portability is a beautiful idea that will revolutionize estate planning. However, a closer look at portability may leave you crying like Tammy Faye Bakker.

So what is portability? The new law of portability allows a surviving spouse to use the unused federal estate tax exemption of the predeceased spouse. However, the predeceased spouse must have passed away in 2011 or 2012. But portability is not all that you would hope it to be. In fact, if you are not very careful, portability might make you cry for several reasons, including:

1. Portability is a temporary idea. The concept is set to lapse on December 31, 2012. While portability may be extended, it is imprudent to rely on a temporary planning idea.

2. One benefit of traditional planning (rather than relying on portability) is that the children of the predeceased spouse are more likely to receive their intended inheritance. This problem is very common but infrequently addressed.

More than a few spouses have expressed concern that their surviving spouse could remarry (visualize an Argentinean polo player or Swedish tennis professional here). If the surviving spouse does remarry, is it wise to simply hope the children of the first marriage will ultimately receive assets when the surviving spouse passes away? Do you really think your spouse's next spouse will adore your children or grandchildren? Traditional planning offers some assurances, but portability does not.

Further, if remarriage occurs and the new spouse also predeceases, the portability of the first spouse's exemption vanishes.

3. Illinois does not have the concept of portability, which means that a wealthy couple relying entirely on portability may unnecessarily pay Illinois estate taxes of about $250,000 or more.

4. Traditional estate planning, which relies on thoughtful asset titling be between spouses, affords creditor protection to surviving spouses. Unfortunately, reliance on portability does not offer creditor protection.

5. The federal generation-skipping transfer tax (GST) exemption is not portable. That means that wealthy families who rely on portability may voluntarily and unnecessarily re-expose their assets to estate taxes in their children's estates.

6. To get the benefit of portability, the surviving spouse must timely file an estate tax return for the predeceased spouse. If a couple is so cavalier as to rely on the new concept of portability (rather than actual estate planning), will the surviving spouse be attentive enough to file a complex, 40-page federal estate tax return?

Prudence suggests that leaving a desired result to hope or fate is naïve. The proper solution? Asset titling and estate planning, rather than misplaced reliance on a new and possibly temporary concept called portability.

At a glance, portability appears to be to estate planning what Cindy Crawford was to modeling. Under closer scrutiny, portability needs a makeover.

Cindy says, "Don't rely on portability and don't end up crying like Tammy Faye Bakker."

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