Portability allows a surviving spouse to benefit from his/her spouse’s unused federal estate tax exemption. A portability election is made by filing a federal estate tax return within 9 months after the decedent’s death, or within 15 months after the decedent’s death if an extension is requested within the first 9 months.
A number of estates of decedents who died in the first few months of 2011 failed to take advantage of the portability election due to confusion over this new provision and delayed IRS guidance. In light of the confusion, the IRS has decided to allow certain estates to make the election even if they missed the deadline.
Estates of decedents who died during the first six months of 2011 may make the portability election as long as they file Form 706 within 15 months after the date of the decedent’s death. For example, if the decedent died on January 2, 2011, a Form 706 needs to be filed no later than April 2, 2012. This limited group of estates could make the election even though an extension of time to file was not requested.
At this time, we do not know for sure that the surviving spouse will benefit from portability. As the law is currently written, the surviving spouse will only benefit if he or she dies before December 31, 2012 and would otherwise owe federal estate taxes. Generally, this means that they must have an estate over $5.12 million. Current law eliminates the benefit of portability for surviving spouses who die on January 1, 2013 or later. Even though very few will benefit from the law as currently written, we are still recommending that you make the portability election. President Obama’s budget proposal recommends that portability be extended permanently. Furthermore, portability has widespread support in both houses of Congress.
If you are the Executor of the estate of a married person who died after December 31, 2010, you should consider filing Form 706 to make the portability election even though a Form 706 does not otherwise have to be filed.