December 20, 2011
Authored by: Jordan Ware and Susan Blumenthal
If you are administering an estate for the first spouse of a married couple to pass away in 2011 or 2012, you should consider whether or not to make a “portability election” under Section 2010(c)(5)(A) of the Internal Revenue Code.
Section 2010(c), as recently amended, generally allows a surviving spouse of a U.S. citizen decedent who passes away in 2011 or 2012 to use the decedent’s unused Federal estate tax exclusion amount in addition to the surviving spouse’s own basic Federal estate tax exclusion amount. This eliminates the need for spouses to re-title property and/or create trusts solely to take advantage of each spouse’s full basic Federal estate tax exclusion amount.
Under the current tax law, a person’s applicable Federal estate tax exclusion amount is the sum of (1) the basic Federal estate tax exclusion amount (currently, $5,000,000 minus any taxable lifetime gifts) and (2) in the case of a surviving spouse, the deceased spousal unused exclusion amount, if any.
For the executor of the estate of a decedent to elect under section 2010(c)(5)(A) to allow the decedent’s surviving spouse to use the decedent’s unused Federal estate tax exclusion amount, the executor is required to file a complete and timely-prepared Federal Estate Tax Return Form 706 for the decedent’s estate, even if the executor is not otherwise obligated to file a Form 706. Thus, by timely filing a properly-prepared and complete Form 706, an estate will be considered to have made the portability election without the need to make an affirmative statement, check a box, or otherwise affirmatively elect, on the Form 706.
For more information on portability, see our previous blog post, Portability: the Good, the Bad, and the Ugly.
Because of the possible implications of filing a Federal Estate Tax Return Form 706 solely for the purpose of preserving portability, and because of varying family situations, it is best for the executor to consult with an estate planning attorney to determine whether or not to make a “portability election”.