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New Regulations Re: Estate Tax “Portability”

Posted Friday, August 31, 2012 by John S. Palmer

The Treasury Dept. recently issued temporary regulations regarding the transfer, or “portability” of a deceased spouse’s unused estate tax exclusion amount to a surviving spouse. The regulations address the requirements for electing portability and the rules for a surviving spouse’s use of a deceased spouse’s unused exclusion amount.


The federal government does not impose estate tax on a decedent’s estate if the value of the estate is below a certain threshold amount, referred to as the “exclusion amount”. The exclusion amount for 2012 is $5,000,000, but will go down to $1,000,000 in 2013 unless the law is amended before then. Legislation is currently pending to permanently set the exclusion amount for 2013 forward at between $1 million and $3.5 million.

In December 2010, Congress amended the Internal Revenue Code to allow “portability” of the estate tax exclusion amount between spouses. Under the portability concept, a surviving spouse can increase his or her applicable exclusion amount by claiming a deceased spouse’s unused exclusion amount. For example, if a spouse dies in 2012 with a $3 million estate, his or her executor can elect portability of the unused exclusion amount, thereby increasing the surviving spouse’s exclusion amount by $2 million.

While this right to claim a deceased spouse’s unused exclusion amount is set to expire in December 2012, some of the legislation before Congress would make portability permanent.

Electing Portability

The temporary regulations issued by the Treasury Dept. in June require a portability election to be made on a timely-filed estate tax return for the deceased spouse’s estate, even if a return would otherwise not need to be filed. The portability election is irrevocable once the due date for the return (including any extensions) has passed, and generally must be made by the executor or administrator of the deceased spouse’s estate. If there is no court-appointed executor or administrator, the election can be made by a “non-appointed executor” which the regulations define as any person in actual or constructive possession of any property of the decedent.

If the decedent’s estate is only filing a return to make the portability election, the executor need not place a specific value on property that qualifies for the marital or charitable deductions. However, the executor must include a computation of the unused exclusion amount, and special computation rules apply when property passes to a qualified domestic trust (QDOT) for the benefit of the surviving spouse.

The IRS is in the process of amending Form 706 to add space for making the portability election and including any additional information required by the regulations.

Multiple Portability Elections

The temporary regulations also address how portability will apply to the estate of a surviving spouse who elected portability with respect to two or more deceased spouses. Generally speaking, the surviving spouse (or his or her estate) may only use the unused exclusion amount of his or her most recently deceased spouse, provided the spouse died after 12/31/2010. That means a surviving spouse may remarry and still use the unused exclusion amount of a first spouse (i.e., his or her “most recently deceased spouse”) to offset taxes that otherwise would be due on taxable lifetime gifts. However, after the death of the second spouse, the surviving spouse loses the right to use any remaining unused exclusion amount from the first spouse, but may elect portability of the unused exclusion amount of the second spouse. If the second spouse’s estate has no unused exclusion amount, or the executor fails to elect portability, then the surviving spouse has no unused exclusion amount available to him or her.

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