“The Advantages of Portability ” by Attorney Alex Pagnotta (Audio)
When a decedent dies, a federal estate tax return (IRS Form 706) is not required to be filed unless the decedent’s gross estate exceeds their remaining federal estate tax exclusion. In 2022, for someone who has not used any exclusion during their lifetime, this would be $12.06 million. Maryland also has an estate tax, as it decoupled from the federal tax, and it is currently capped at $5 million. However, even if the gross estate of the decedent does not exceed the required threshold to file, this does not mean filing an estate tax return may not be the best course of action. If the decedent was married at death, their executor may wish to file a 706 to elect “portability”.
Portability is the ability for the surviving spouse to use the deceased spouse’s unused estate and gift tax exclusion after the deceased spouse’s death. Portability has been part of the law since late 2010. Until 2012, portability was part of a law that had been due to sunset, but the American Taxpayer Relief Act of 2012 removed the sunset provision. Therefore, estate planners were able to build into their practice and educate clients on the advantages. Maryland recently adopted portability as of January 1, 2019, and similar to federal law, it must be elected within nine months of the decedent’s date of death. An extension of time may be requested.
The preparation of an estate tax return often is a complex task. A complete review of the decedent’s estate plan and financial portfolio must be completed, which includes asset verification and document review. There may be some options available for the executor in preparation of the documents if the return is being filed only for purposes to elect portability. Of course, there are exceptions and caveats to the regulations. The executor must act in good faith as well, and could be subjected to review. The filing of the estate tax return ordinarily starts the three year statute of limitations running. However, the IRS may examine a return, even after the expiration of the statute of limitations, to determine whether the amount of the deceased spouse’s exclusion which was ported to the surviving spouse was correct. This holds true even if the IRS had issued a closing letter.
Portability is a valuable tool for a surviving spouse, considering assets such as real estate or investments can significantly appreciate and as we are living longer. Sinclair Prosser Gasior can help file an estate tax return to preserve the deceased spouse’s unused exclusion amount for the surviving spouse and provide extra peace of mind.
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