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IRS Releases Guidance on Federal Estate Tax Exemption Portability (Notice 2011-82, September 29, 2011)

As many of you know, the present Federal Estate Tax Law allows for a surviving spouse to carry forward the Federal Estate Tax Exemption available to his or her deceased spouse at his or her death.  To garner the benefits of this “Portability” provision, the Internal Revenue Service (also referred to as “IRS”) does not require a surviving spouse to establish a credit shelter trust like those utilized in many estate plans in years past.

Federal Tax Exemption Portability

Now that you know that the Portability provision exists, we can tell you the mechanics of making the proper election.  The IRS Notice 2011-82 issued on September 29, 2011 explains that the executor of the first decedent spouse’s estate must timely file a Form 706 “on which the executor computes the deceased spousal unused exclusion amount [“DSUEA”] and makes a portability election.”

The Internal Revenue Service makes it clear through its statement that “most (if not all) married decedents dying after December 31, 2010, will want to make the portability election.”  Although the surviving spouse or other executor of the surviving spouse’s estate might have to do a bit more work to prepare and file the federal estate tax return, the benefits for the future generation could be significant.  It is calculated that the additional $5,000,000 of federal estate tax exemption resulting from the portability election could result in a federal estate tax savings of $1,750,000.

Again, we believe it is important for virtually all surviving spouse’s to file for the Portability of their deceased spouse’s estate tax exemption.  While a surviving spouse’s estate value might be under the present $5,000,000 exemption per person, one of the following could happen:

1)  The surviving spouse’s estate value could rise significantly and ultimately exceed his or her exemption at his or her death.

2)  The Federal Estate Tax Exemption could be reduced below the surviving spouse’s estate value.

3)  There could be a rise in the estate value and a decrease in the exemption amount.

Regardless of which of those occurs, the extra $5,000,000 of exemption that could be carried forward from the decedent spouse would go a long way toward protecting some or all of the second deceased spouse’s estate from the 35% tax that now would apply.

While the preparation and filing of the Form 706 can be complex and time consuming it is likely well worth the effort when considering the potential tax savings.

IMPORTANT NOTE: For decedents dying on January 1-3, 2011, the deadline for filing a 706 is Monday, October 3, 2011. You may secure an automatic six-month extension by filing Form 4768 by the original due date for the 706.

Click on the link below to view or download a copy of this important Notice. http://www.irs.gov/newsroom/article/0,,id=246604,00.html

To read our article on the Federal Estate Tax’s Future click here

Will the Federal Estate Tax Law Be Modified in 2012? Obama Gives Us A snippet of Insight.

For assistance in preparing and filing a Form 706 and making the necessary Portability elections, please contact Douglas L. Kaune, Esquire.

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