Preserve estate tax portability
Monday, October 24th, 2011
To preserve estate tax portability, executors must file Form 706 Estate Tax Return for decedents dying in 2011 and later. The nine month filing deadline may be extended an additional six months. This election is not available for decedents dying before 2011.
In the law reinstating the estate tax in 2010, Congress established an exclusion amount of $5 million per person in 2011 (adjusted for inflation in future years). An estate with a taxable value below this amount is not subject to federal tax (the limit remains at $1 million in Tennessee). The law also provided for any unused exclusion amount to be passed on to the surviving spouse. The election to do so is made, and the amount is established, by timely filing an estate tax return for the decedent. The return must be filed even though it may not be otherwise required under the estate tax rules.
In a common scenario, the estate assets of the first spouse to die are transferred to the surviving spouse, either through joint ownership with right of survivorship or by will. This may result in accumulation of assets in the surviving spouse’s estate that would exceed the $5 million exclusion, resulting in estate tax liability. The portability election allows the unused exclusion amount of the first spouse to die to be added to that of the second to die, sheltering additional assets from estate tax.
This election is a new estate planning tool that can help a family preserve its assets. Good estate planning may reduce or eliminate the need to take advantage of the portability election. If your family has substantial assets such as a family business or investments, you may benefit from a discussion with an accountant and an attorney who are both familiar with estate planning and tax reduction techniques, as we are. If a loved one passed away in 2011, timing is critical to preserving the estate tax portability election.