Executors Must Act Soon to Guarantee Spousal Portability of Gift and Estate Tax Exemptions for Estates of Decedents Dying in 2011

 By Rose Drupiewski

Beginning in 2011, there is portability of the gift and estate exemption amounts for spouses. The portability feature provides that if a spouse dies after 2010 without using all of his or her gift and estate tax exemption amount (currently $5 million), the unused gift and estate tax exemption amount may be carried over to the surviving spouse and used by the surviving spouse in addition to the surviving spouse’s available exemption amount. The unused exemption amount that can be carried over to the surviving spouse is limited to the basic exemption amount available at the time of the surviving spouse’s death. The purpose of the portability feature is to relieve spouses from the burden and expense of having to retitle assets or create trusts in order to obtain use of both spouses’ gift and estate tax exemptions.

In IRS Notice 2011-82, the Internal Revenue Service recently reminded taxpayers that in order to take advantage of the new portability feature, the executor of the deceased spouse must file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Filing the return is the only requirement to make the portability election, as the Service does not require that any affirmative statement be made, box checked, or other special action be taken on the return to obtain portability. The estate tax return must be timely filed for the predeceased spouse for the election to be valid. Because estate tax returns are due nine months after the date of death, the first estate tax returns being filed for portability purposes are due beginning in October, though estates may request an automatic filing extension of six months by filing Form 4768.

Because of the uncertainty regarding future changes to estate and gift taxes and applicable exemption amounts, executors of decedents dying in 2011 will most likely want to file an estate tax return to allow portability even if there is otherwise no obligation to file an estate tax return. The portability feature may provide a substantial benefit to the surviving spouse’s estate in the event the estate tax exemption amount drops to $1 million, as it is currently scheduled to do in 2013.

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