Joshua Caswell, J.D. Candidate, Suffolk University Law School
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 amended Internal Revenue Code § 2010(c) to create, for the first time ever, “portability” of the federal estate tax exemption amount between spouses, such that a surviving spouse’s federal estate tax exemption amount may be increased by the amount unused by the deceased spouse. Portability is currently effective with respect to deaths in 2011 and 2012.
On September 29, 2011, the IRS released Notice 2011-82, providing instruction for making (and avoiding) the portability election. Pursuant to the Notice, executors and administrators should consider filing a Form 706, United States Estate (and Generation Skipping Transfer) Tax Return to take advantage of portability for the surviving spouse, even if an estate is otherwise not required to file. The Notice provides as follows:
Making the Election
The IRS’s intention is to the election as uncomplicated as possible, to minimize inadvertently missed elections:
- The executor or administrator of the estate of a decedent dying in 2011 or 2012 must timely file Form 706 to elect portability and preserve the decedent’s “unused exclusion amount”, even if the estate is not otherwise required to file.
- The decedent’s unused exclusion amount is defined in § 2010(c)(4) as “[t]he lesser of (A) the basic exclusion amount, or (B) the excess of (i) the basic exclusion amount of the last such deceased spouse of such surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of the deceased spouse”.
- A timely filed Form 706 is one filed within the time prescribed by law (including extensions).
- Once a portability election is made, it is irrevocable.
- A portability election will be presumed to be made on any properly filed Form 706. Besides filing the Form 706, no other affirmative action is needed. Any Form 706 filed after the time prescribed by law will not be presumed to have made the portability election.
The IRS anticipates that most, if not all, executors or administrators of estates of decedents dying in 2011 or 2012 will want to make the portability election. However, if the election is not desired, it can be avoided as follows:
- If a Form 706 is not required and an executor or administrator does not want to make the portability election, simply not filing Form 706 will prevent the portability election from being made.
- If a Form 706 is required and an executor or administrator does not want to make the portability election, he or she must affirmatively opt out by timely filing Form 706 and attaching a statement indicating that the estate is not making the election under § 2010(c)(5), or by writing “no election under Section 2010(c)(5)” across the top of the first page of Form 706, as provided in the Instructions for Form 706.
- The IRS intends to issue regulations under § 2010(c) consistent with this Notice, and to address further issues arising from the portability election.