Unlocking the Benefits of Portability of Unified Transfer Tax Credit

What is the significance of portability of unified transfer tax credit?

a. Allows the transfer of unused exclusion amount to the surviving spouse
b. Helps in reducing gift taxes for both spouses
c. Facilitates direct asset transfers between spouses
d. Is only applicable when one spouse retires
e. None of the above

Answer:

The correct option is a.

The concept of portability of the unified transfer tax credit applies to estate tax and gift tax exemptions in the United States. Under current tax laws, if one spouse dies and does not use up their full applicable exclusion amount (also known as the unified credit), the unused portion can be transferred or "ported" to the surviving spouse. This allows the surviving spouse to increase their own applicable exclusion amount for estate and gift tax purposes.

In other words, the unused applicable exclusion amount of the deceased spouse can be added to the surviving spouse's applicable exclusion amount, effectively allowing them to potentially shield a larger portion of their estate from estate and gift taxes.

The true statement about the portability of the unified transfer tax credit is that if one spouse dies, the unused applicable exclusion amount can carry over to the surviving spouse, helping to reduce their future estate and gift tax liabilities.

The other options provided are not accurate descriptions of the portability of unified transfer tax credit. Portability does not apply when a spouse has an excess amount after using the exclusion, it isn't simply for reducing gift taxes by splitting gifts between spouses, it is not a method of directly transferring assets, and does not relate to the retirement of a spouse.