Portability Deadline Weeks Away for Estate Tax Exclusion

Estate Planning

For estates of decedents who died in 2011 or 2012, the chance to elect portability of the decedent’s estate tax exemption will expire on December 31, 2014.

Estates valued over $5.34 million owe federal estate tax of 40% on the amount in excess of the threshold; this amount is adjusted annually for inflation, with the threshold increasing to $5.43 million in 2015. Married couples are permitted to transfer unlimited amounts of property to a spouse both during life and at death without using part of this exemption amount. Thus, in the absence of substantial lifetime gifts, if a decedent leaves all of his or her property to a surviving spouse at death, then the decedent’s entire $5.34 million exemption would be unused.
As of 2011, a surviving spouse may elect to use a deceased spouse’s unused exemption amount by filing a Federal Estate Tax Return (Form 706), thereby increasing the exemption amount for property that can be left at the surviving spouse’s death estate tax-free to $10.68 million or more, depending on the exemption amount for the year of the surviving spouse’s death. The Federal Estate Tax Return is due nine months from the decedent’s date of death, with a six month extension available upon request. If a return was not timely filed, portability would normally not be available. However, earlier this year the Internal Revenue Service announced an extension for eligible estates until December 31, 2014.
The following requirements must be met for an estates to be eligible for portability election:
  • Decedent was a U.S. citizen who died on or between January 1, 2011 and December 31, 2013 leaving a surviving spouse.
  • The taxpayer is not required to, and has not, filed an estate tax return.
  • Estates involving married same-sex couples that fall under the dates captioned above. (The Windsor ruling granting federal recognition of same-sex marriages occurred during the portability window. Some surviving spouses may not have filed for portability yet.)
Elect portability by submitting a complete and properly-prepared Form 706. With the deadline fast approaching, individuals should ensure the form is filed timely and completed correctly. Ensure your Form 706 is error-free by consulting a tax attorney. For example, the individual filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).” A tax attorney can ensure items like this are included appropriately.
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