Recent tax law has provided the opportunity for surviving spouses to use not only their own exclusion of over $5 million when it comes to the value of an estate, in regards to estate taxes, but to have the ability to add their deceased spouse’s unused exemption to their own.  In effect, there is now the opportunity to combine the two exclusions to over $10 million worth of assets and gifts before federal estate tax applies to a married couple’s combined estate.  Estates that are under the filing threshold still need to file a Form 706, Estate Tax Return in order to elect the portability of the deceased  spouse’s estate exemption, since it is not automatic.

Taxpayers with small to moderate sized estates can benefit from the portability election, also.  This planning tool can simplify estate planning, remove the need to separate assets to equalize the spouses’ estates, and permit couples to maximize their exclusion amounts.  In addition, because the future is unknown, portability allows the surviving spouse to have an additional exemption amount available for gifting, should there be a large windfall or exceptional asset appreciation.

In order to take advantage of this planning opportunity, the decision to elect portability must be made within nine months of the first spouse’s death. Typically, estate tax returns must be filed nine months after the date of death to report estate assets, deductions, and lifetime gift taxes paid, if any.  In the past, if the deceased estate was below the filing threshold (indexed each year for inflation – $5.43 million for 2015), many executors did not file returns. In light of this procedure and recent U.S. Supreme Court rulings, it should be a top consideration for executors and estate planners.

If you have any questions about estate portability, please contact one of the qualified tax professionals at 703.385.8888.

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