Portability Election for Unused Estate Exclusion

The IRS has just issued new regulations on the portability election for an unused estate exclusion, which could be important for anyone whose spouse died in 2011 or 2012, and their beneficiaries. If death occurs in either year, the decedent's estate can exclude up to $5M of value from estate tax calculations, and elect to use any unused amount at the subsequent death of a surviving spouse. However, a potential problem is that an estate of the first to die, with assets under the $5M level, may not otherwise have to file an estate return, and thereby may fail to make the required election. 

The IRS had previously provided a 15 month extension to file the estate return and a deemed election for decedents dying in the first 6 months of 2011. The new regulations now clarify that a simplified return must be filed within 9 months after death, with limited disclosures supporting the calculation of the unused exclusion. 

If the surviving spouse has even limited possibility of having an estate that exceeds $5M at death, and could benefit from the the unused exclusion of the earlier deceased spouse, be sure to discuss the portability election with those responsible for the administration of the decedent spouse's estate. Many have noted that a surviving spouse's estate can unexpectedly rise in value (additional inheritance, lottery winnings, etc.), or simply can be underestimated in the planning process. The value of the election after 2012 remains unclear, because the portability provisions expire at 12/31/12, but new law extending portability could cause a protective election now to have significance far down the road.

If you want to discuss tax issues, connect with Brian Monbouquette at 804-955-4440