12th Nov 2014

You may have heard your estate planner or CPA use the term “portability” in reference to an estate.  What is it?  Portability is the ability of the unused portion of unified credit from one estate to be applied to the estate of their spouse.  For example, Joe and Mary have an estate totaling $8,000,000.  Joes dies in 2011 having an estate of $3,000,000 to Mary outright.  When Mary dies, she can apply the unused portion of Joe’s unified credit to her estate increasing her unified credit by Joe’s entire unified credit amount (in 2014 $5,340,000).  This was unheard of prior to 2010 without the use of specialized trusts. However, portability is an election and must be done at the time the first spouse deceases.  The election is done by filing a timely federal estate tax return and only applies to estates for persons who died after December 31, 2010.

Now let’s presume that in 2011, with all the other craziness that was going on with repeal and reinstatement of the estate tax that Joe and Mary’s CPA told widow Mary that she didn’t need to file an estate tax return for Joe because his estate was under the taxable threshold.  While technically true, failing to file also means failure to elect portability.  Now Mary has been diagnosed with cancer and is worried about getting her affairs in order.  Is there anything she can do?

Enter the IRS, being the good guys for once!  Until December 31, 2014, the end of this year, if the decedent died between December 31, 2010 and December 31, 2013, you can still file a federal estate tax return to elect portability.  This relief was in recognition of the lack of regulations until earlier this year and the confusion surrounding portability and how it would be elected.  If your spouse died in 2011, 2012, or 2013 and no estate tax return was filed, please consult an estate planner or tax professional to see if filing a late return is advisable for you.  Also, if you were in a legal same-sex marriage prior to 2013 and your partner died in this time period, you can also now take advantage of portability due to the Windsor decision. Do it soon though, 2014 is almost over!

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