The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 added a new “portability feature” for estates of decedents dying after 2010 and before 2013, under which the applicable exclusion amount is the sum of (1) the “basic exclusion amount” (i.e., $5 million with an adjustment for inflation after 2011), and (2) in the case of a surviving spouse, the “deceased spousal unused exclusion amount.” The “deceased spousal unused exclusion amount” is the lesser of: the basic exclusion amount, or the excess of the basic exclusion amount of the last deceased spouse dying after Dec. 31, 2010, of the surviving spouse, over the amount on which the tentative tax on the estate of the deceased spouse is determined.
A surviving spouse may use the deceased spousal unused exclusion amount in addition to her own $5 million exclusion for taxable transfers during life or at death.
The IRS recently issued a Notice reminding executors of estates of individuals dying after Dec. 31, 2010, that they must timely file a Form 706 tax return, in order to allow the surviving spouse to take advantage of the decedent’s unused exclusion amount. Any attempts to make a portability election for the estate of a decedent dying on or before Dec. 31, 2010 will be ineffective.
Most married couples will want the surviving spouse to be able to take advantage of the unused basis exclusion amount of the first spouse to die. In order to do so, a Form 706 must be properly and timely filed. Form 706 must be filed in order to make the election, even if the estate is not required to file a Form 706 due to a value lower than the exclusion amount.
You can contact a qualified estate planning attorney at 775-688-3000 to discuss how you may take advantage of the portability election.