Ability to Elect Portability, Broadened by IRS


We have explored in past blogs the 2010 tax act and the provisions for allowing surviving spouses to elect portability of the applicable Estate Tax exclusion then remaining upon the death of their spouse (i.e., the $5,120,000 exclusion minus the gross estate value).  For example, where the first spouse in a married couple dies, with an Estate totaling $3,000,000.00, the surviving spouse can elect to carry over $2,120,000.00 of unused exemption to be combined with their own Estate Tax exemption upon their death.  Thus, when the second spouse dies, if the Estate Tax exemption has been decreased to $1,000,000.00, the surviving spouse who has elected portability, will be able to utilize the preserved $2,120,000.00 in addition to that $1,000,000.00, thus subjecting their estate to lower Estate Taxes and a higher exemption amount.  To assist the general public in accomplishing this, the IRS has now imposed temporary regulations relaxing the filing requirements in order for surviving spouses to elect portability.

In Maryland, the pro forma Federal Estate Tax return is required to be filed with the filing of the Maryland Estate Tax Return as backup documentation.  Therefore, in those instances, it has been a common practice with our clients to file the Federal Estate Tax Return as well since it has been already completed.  But, for our clients under the $1,000,000 Maryland filing threshold, there was a big decision on whether to elect portability because of the cost of completing a Federal Estate Tax Return, when no Estate Tax Return was required.  Now, the temporary regulations in IRS § 20.2010-2T(a)(7)(ii) permit the executor of an estate to file the Federal Estate Tax Return under less stringent requirements.  Under these regulations, while most requirements remain the same, a Federal Estate Tax Return filed merely for portability election, need only be filed in a manner that estimates the value of property that qualifies for the marital or charitable deduction.  Therefore, the Estate will not need to have appraisals and valuations completed of marital property thus saving the Estate time and money.

Based on these new regulations, there is now more reason to file for portability, no matter the size of the estate.  As we always tell our clients, you do not know what wealth life may bring.  Now, to be able to exempt a large portion of that at a minimal cost, this option should be strongly considered.

–  Gary Altman, Esq. and Adam Abramowitz, Esq.

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