Spousal Portability and the Estate Tax After 2010

Estate Tax

The Tax Relief Act of 2010 included a spousal portability provision for the $5 million estate tax exemption. If a married person dies after December 31, 2010 and does not use all of his or her exemption, the unused portion can be transferred to the surviving spouse.

For example, if husband dies and uses $1,000,000 of his exemption on bequests to his children, with the remainder of the assets passing tax-free to his wife, she can add the remaining $4 million of the husband’s exemption to her exemption (making her total exemption $9 million under current law).
To take advantage of portability, however, the unused exemption must be transferred from the estate of the first spouse to die to the surviving spouse.   This can be done only by filing a federal estate tax return (Form 706), even if no tax is due.  If the return is not filed, any excess exemption is forfeited and cannot be used at the death of the surviving spouse.
Form 706 is due nine months after the death of the decedent, with a six month extension available.  Executors should file extensions now for decedents who died in early 2011 since the final 2011 Form 706 is not yet available.
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