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Estate Tax Portability Concept Requires Filing of Estate Tax Return
For decedents dying in 2010-2012, the amount that can be transferred at death free of estate tax, known as the basic exclusion amount, is $5 million, as indexed for inflation beginning in 2012. In 2011 and 2012, a surviving spouse may use the “deceased spousal unused exclusion amount” on top of the surviving spouse’s own $5 million basic exclusion for taxable transfers made during life or at death. This concept is commonly referred to as portability. For the time being, portability will not apply to decedents dying after 2012 and the exclusion amount for a surviving spouse will again be limited to that surviving spouse’s own exclusion amount.
Note that a surviving spouse cannot take advantage of his or her deceased spouse’s unused exclusion amount unless the personal representative of the deceased spouse’s estate files an estate tax return that calculates the portable amount and makes a portability election. As a result, all personal representatives of estates of deceased married persons should consider filing federal estate tax returns, no matter how small the estate. This is because the amount of the surviving spouse’s gross estate is unknown at the death of the first spouse to die, and the surviving spouse could, for example, later win the lottery or have substantial asset appreciation. The portability election is irrevocable and cannot be made if the estate tax return of the deceased spouse is filed after the due date (including extensions) for filing the return.
Unfortunately, it is impossible to give comprehensive tax and accounting advice over the internet, no matter how well researched or written. Before relying on any information provided here, contact a tax or accounting professional to discuss your particular situation.