Dear Liza: It is my understanding that in order to preserve the “portability exemption” a surviving spouse must file an estate tax return  (706), which would not be required otherwise. It seems that 706 involves quite a bit of work and additional expenses. Do you think it’s worth the effort?  Surviving spouses of those who died in 2011 and 2012 have that decision to make. The problem is, there’s not an easy answer.  For those who don’t know what the question is, here’s a quick summary: Current estate tax law allows a surviving spouse to use any part of the $5 million exclusion from the estate tax that was available to their deceased spouse but not used by that spouse.  For example, if your spouse died in 2011, and their part of the estate was $1 million, you could use that extra $4 million dollars of unused exclusion to further reduce any estate tax due at your death. Your spouse’s exclusion would be portable to you. Except. There’s always an except. And this time there are couple of them, and they’re all pretty big:

  • In order to make use of that exclusion, you do have to file an estate tax return nine months after your spouse has died.
  • Estate tax returns require a detailed accounting of all of your spouse’s assets, which costs money and takes time to prepare.
  • Once filed, the IRS can examine, without any limitation period, a deceased spouse’s estate tax return to adjust the amount of the deceased spouse’s unused exclusion amount passing to the surviving spouse. 
  • There’s no guarantee that the additional, portable, exclusion will actually be available to you when you die, unless you die in 2012, because the current law expires in 2013.

In the end, you have to decide whether the time and cost involved are worth the potential tax savings down the road. For some people it is; for many, it isn’t.