A recent Q&A in The Wall Street Journal reveals that the “Gift-Tax Exclusion Isn't 'Portable'” Consequently, there are some important lessons to draw from this, to wit:
"Portability" means the surviving spouse can use the deceased spouse's unused exclusion amount without having to create complex trusts or use other tax-saving techniques. This provision was designed as a simplification effort. But many people may need to hire an expert to make sure they understand all the fine print.
The concept of “portability” first arose in 2011. Essentially, “portability” is a feature of your unified credit. The unified credit is a fancy term for the amount you can exclude from taxation either by way of gifting during your lifetime or through bequests after death. Under current tax law, you get one unified amount ($5.25 million under current law) to use either in life or in death. If unused by one spouse at death, the amount becomes “portable” in that such deceased spouse can pass any unused credit to their surviving spouse.
This is not the same as your annual gift tax exclusion, which is the amount you or anyone can give during the course of any given year without taxation or effect upon your lifetime gift tax exclusion (aka unified credit). Your annual gift tax exclusion is not “portable.”
Once we get used to it, “portability” may be a real time-saver and could simplify many estate plans. In the interim, however, it is strange in its novelty compared to traditionally-accepted estate planning techniques.
Even if you are not susceptible to the estate tax at its current level, you might want to investigate how “portability” may impact your own estate planning. Note: the benefits of “portability” are not automatic and require some very specific steps to enjoy it.
Reference: The Wall Street Journal (June 22, 2013) “Gift-Tax Exclusion Isn't 'Portable'”