Last December, Congress pushed through a whole set of changes meant to make them look good on Election Day things easier for taxpayers. One of the changes was the new portability provision which allows spouses to “share” their federal estate tax exclusion amounts with each other.
Each person is allowed an exclusion for federal estate tax purposes (it’s $5 million for 2011) which, traditionally, was wasted if not used up. That made for some jumping through hoops on the part of taxpayers in terms of retitling property to equalize estates and creating trusts in order to preserve the exemption amounts.
Under the new portability provision, estates of married taxpayers can pass along the unused part of the their exclusion amount to the other basically creating a joint $10 million exclusion for married taxpayers. Pretty great, right? I think most of us can swing not having to pay federal estate tax with that size exemption.
However, the portability provision isn’t automatic. It’s an election. In order to take advantage, then, estates must timely file a federal form 706, U.S. Estate Tax Return (downloads as a pdf). Federal estate tax returns are due nine months after the date of death unless you request an extension.
To take advantage of the election, you must timely file the return. The IRS assumes that most estates will *want* to make the election so the default is that a filed return equals making the election. There’s no box to tick or extra form to fill out, just file the return. If you don’t timely file the return, you haven’t made the election.
Yes, this does mean that, if you want to make the election, you will have to file a federal estate tax return even when there’s no taxable estate. Most practitioners, like myself, tend to file anyway when there’s a surviving spouse who might be subject to federal estate tax, mostly for statute of limitations and valuation reasons, so my guess is that this won’t be much of a burden.
Of course, there might be a situation where you have a taxable estate and are required to file a federal form 706 but do not want to make the election. If that’s the case, you’ll have to attach a statement to the form 706 indicating that the estate is not making the election under I.R.C. section 2010(c)(5) or write “No Election Under Section 2010(c)(5)” on the top of the first page of the form 706.
To be honest, I’d be surprised if that procedure continues past this year. It’s bound to cause confusion. I expect to see some kind of checkbox in the future. But for now, it is what it is.
The IRS plans to issue regulations providing further guidance and if you have a comment, they’d love to hear from you. For more information, check out Notice 2011-82 (downloads as a pdf).
