Don’t Overlook the Portability of a Deceased Spouse’s Unused Estate Tax Exemption
October 3, 2013
- Estates may elect to transfer the unused estate tax exclusion to the surviving spouse.
- Election must be made on an estate tax return for the decedent.
- The estate tax return must be timely filed.
The highest marginal estate tax rate is currently 40%; therefore, the unused exemption passed from a decedent to his or her spouse via the “Portability Election” amount can result in significant estate tax savings.
A surviving spouse can apply the unused exclusion amount received from the estate of his or her last deceased spouse against any tax liability arising from subsequent lifetime gifts and transfers at death.
Making the Election - To make the portability election, an estate tax return must be filed on time, even if the estate would not otherwise be required to file an estate tax return. Failure to file the estate tax return will result in the loss of the portability of the spouse’s unused exclusion amount. A timely filed return is one that is filed on or before the due date of the return, including extensions.
When a surviving spouse’s estate is expected to be valued at less than the estate tax exclusion amount when he or she passes, it may seem to be a waste of time and money to file a 706 Estate Tax Return for the pre-deceased spouse. However, in making that decision, one should consider the possibilities of the surviving spouse receiving inheritances or winning the lottery, or of Congress reducing the estate tax exemption at some time in the future. Any of these potential events could result in substantial estate tax considering the current tax rate on taxable estates is 40%.
If you believe that the election to transfer any unused exclusion to a surviving spouse applies to you, family members, or friends and would like additional information, please give this office a call.