Action Required: Portability
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The American Taxpayer Relief Act of 2012 (ATRA) extended and made permanent (i.e., until Congress changes its mind) a number of key estate tax provisions. This includes a $5 million ($5.25 including inflation) estate tax exemption and portability of a deceased spouse’s exemption to the surviving spouse. The result of this means that married couples can shelter up to $10.5 million of their estate from federal taxes.
What is “portability”? Portability makes the federal tax exclusion amount of $5.25 million “portable” between two spouses. When one spouse passes away, the surviving spouse can usually use the remainder of the deceased spouse’s exemption without having to set up complicated trusts or utilize any other tax planning. For example, if a spouse passes away this year having made lifetime taxable gifts in the amount of $1 million and leaving a $9 million estate in its entirety to the surviving spouse, there will be no taxes owed by the deceased spouse. As long as an election is made on the deceased spouse’s estate tax return to allow the surviving spouse to use the remaining $4.25 million unused estate tax exemption, the surviving spouse’s exemption amount available is $9.5 million. This includes the surviving spouse’s own $5.25 million exemption with the addition of the deceased spouse’s remaining $4.25 million unused exemption. However, if the surviving spouse remarries and the new spouse passes away, the surviving spouse cannot use the unused estate exemption of the first deceased spouse.
Portability is not automatic. The surviving spouse must actively elect portability on the deceased spouse’s estate tax return in order to be eligible for the deceased spouse’s unused portion of their tax exemption. While seemingly simple, election of portability may be overlooked by a surviving spouse who believes joint assets and falling under the $10.5 million mark meet the requirements. The estate tax return must be filed in order for the surviving spouse to enjoy portability even though the tax return may not be necessary in any other respect.
IRS Circular 230 Disclosure: Internal Revenue Service regulations generally provide that, for the purpose of avoiding federal tax penalties, a taxpayer may rely only on formal written advice meeting specific requirements. The tax advice in this document does not meet those requirements. Accordingly, the tax advice was not intended or written to be used, and it cannot be used, for the purpose of avoiding federal tax penalties which may be imposed.
IRC Sections 6662 Disclosure:The Internal Revenue Code imposes substantial “accuracy-related” penalties on taxpayers for positions taken on a tax return that result in a substantial understatement of liability for tax. Taxpayers may avoid such penalties by adequately disclosing positions that are not based on “substantial authority” in accordance with the methods described under Treasury Regulations section 1.6662-4(f).
ABOUT THE AUTHOR: By: Christina M. Heischmidt, Attorney at DunlapWeaver PLLC
Christina is an attorney at DunlapWeaver PLLC practicing in Virginia and the District of Columbia. Her areas of practice focuses primarily on civil litigation in the areas of commercial, business and bankruptcy law. She also specializes in comprehensive estate planning and corporate transactional law. She was named to Virginia Business’s 2012 Legal Elite in Taxes/Estates/Trusts/Elder Law. Christina is active in numerous organizations including the Fairfax Bar Association’s Young Lawyers Section and the Trusts and Estates Section, the Northern Virginia Bankruptcy Bar Association, McLean Estate Planning Council, and a local women’s golf/networking group.
Copyright DunlapWeaver, PLLC
More information about DunlapWeaver, PLLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Portability is not automatic. The surviving spouse must actively elect portability on the deceased spouse’s estate tax return in order to be eligible for the deceased spouse’s unused portion of their tax exemption. While seemingly simple, election of portability may be overlooked by a surviving spouse who believes joint assets and falling under the $10.5 million mark meet the requirements. The estate tax return must be filed in order for the surviving spouse to enjoy portability even though the tax return may not be necessary in any other respect.
IRS Circular 230 Disclosure: Internal Revenue Service regulations generally provide that, for the purpose of avoiding federal tax penalties, a taxpayer may rely only on formal written advice meeting specific requirements. The tax advice in this document does not meet those requirements. Accordingly, the tax advice was not intended or written to be used, and it cannot be used, for the purpose of avoiding federal tax penalties which may be imposed.
IRC Sections 6662 Disclosure:The Internal Revenue Code imposes substantial “accuracy-related” penalties on taxpayers for positions taken on a tax return that result in a substantial understatement of liability for tax. Taxpayers may avoid such penalties by adequately disclosing positions that are not based on “substantial authority” in accordance with the methods described under Treasury Regulations section 1.6662-4(f).
ABOUT THE AUTHOR: By: Christina M. Heischmidt, Attorney at DunlapWeaver PLLC
Christina is an attorney at DunlapWeaver PLLC practicing in Virginia and the District of Columbia. Her areas of practice focuses primarily on civil litigation in the areas of commercial, business and bankruptcy law. She also specializes in comprehensive estate planning and corporate transactional law. She was named to Virginia Business’s 2012 Legal Elite in Taxes/Estates/Trusts/Elder Law. Christina is active in numerous organizations including the Fairfax Bar Association’s Young Lawyers Section and the Trusts and Estates Section, the Northern Virginia Bankruptcy Bar Association, McLean Estate Planning Council, and a local women’s golf/networking group.
Copyright DunlapWeaver, PLLC
More information about DunlapWeaver, PLLC
View all articles published by DunlapWeaver, PLLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
