Surviving Spouse – Portability Election?

The American Taxpayer Relief Act of 2012 created an opportunity for surviving spouses to plan to save Estate Taxes. The concept is commonly called “Portability” and requires some explanation.

Decedents’ Estates are subject to a Federal Estate Tax. In 2016, Estate Taxes apply to the amount by which an Estate exceeds $5,450,000. $5,450,000 is the “Exemption Equivalent” or what could be called the Estate Tax-Free Amount. If a Decedent’s assets total less than the Exemption Equivalent, the Surviving Spouse can make an election that may save Estate Taxes in the future. As an example, if the Decedent’s Estate is $2,000,000, that Estate has $3,450,000 of unused Exemption Equivalent. That unused amount is called the “Deceased Spousal Unused Exclusion Amount” or sometimes called the DSUE Amount.

Even if a Surviving Spouse does not currently have an Estate subject to Estate Tax, making the portability election might be important. For example, the Surviving Spouse’s assets may increase during the remainder of his or her lifetime through earnings, appreciation of assets, or inheritance from others. Also, the Exemption Equivalent (the amount subject to Estate Tax) may be reduced by an act of Congress. In 2000, the Exemption Equivalent was $675,000. In 2016, it is $5,450,000. As you will note, the Exemption Equivalent has been dramatically increased; however, there is no assurance that the increase will be permanent. There already have been discussions in political circles of reducing the Exemption Equivalent.

Making the election requires the timely filing of an Estate Tax Return for the deceased spouse, even if there is no Estate Tax required to be paid. The failure to file a timely Estate Tax Return means that the portability election, and the Deceased Spousal Unused Exclusion Amount is lost forever. Estate Tax Returns are due nine months after the date of death (although the date can be extended six months).

You may wish to discuss the advisability of timely electing Portability with your estate professional. The foregoing is a short and simple explanation. There are additional factors and complexities that may apply to individual situations.

The information provided above is general in nature, and should not be construed as legal advice applied to a specific situation. Please discuss the facts of your situation with a qualified professional.

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