A remnant of the Bush tax cuts preserved in 2010 left intact a useful tool for those wishing to avoid additional estate taxes: portability election.
Portability Election is a provision that allows the unused federal estate tax exemptions unclaimed by one spouse to pass on to another instead of expiring upon their death. This provision was enacted as part of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and then renewed in 2013 as part of the American Taxpayer Relief Act.
The unused exclusion is not calculated simply by subtracting the estate’s gross value from the federal exclusion. Property that qualifies for the marital deduction generally does not use the deceased spouse’s basic exclusion, while prior taxable gifts may reduce the amount available. The deceased spousal unused exclusion that can pass to the survivor is calculated on Form 706. See the IRS instructions for the marital deduction and portability and the DSUE calculation rule.
Portability is not automatic. The executor generally must file a complete Form 706 within nine months after death, or by the extended deadline if an automatic six-month filing extension is obtained. Certain estates that were not required to file an estate-tax return under section 6018(a), and did not timely file an estate-tax return, may qualify for simplified late-election relief by filing on or before the fifth anniversary of death under Revenue Procedure 2022-32. Eligibility and filing requirements apply; this is not a general five-year deadline for all estates. See the IRS Form 706 filing instructions and Revenue Procedure 2022-32.
You also want to keep in mind that the portability feature does not extend to future generations or beyond that first couple. The federal generation-skipping transfer tax (GST exemption) is not portable.
Portability is a great tool for estate planning, but keep in mind that it does not address state taxes, can’t be used for multi-generational planning, and it doesn’t address non-tax considerations, such as blended families, asset protection, or avoiding probate.
Over the past 34 years, the Law Offices of Christopher A. Benson has helped clients with estate planning. Contact our Federal Way office for a free initial consultation to discuss your goals and planning options.
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