Estate Tax, Second to Die, and ‘Portability’

In IR 2011-97, IRS recently reminded executors of estates of married decedents dying after 2010 that they must file an estate tax return in order to pass along the unused estate tax exclusion, available now for the first time, to the decedent’s surviving spouse.  This provision eliminates the need for spouses to retitle property and create certain kinds of trusts solely to take full advantage of each spouse’s exclusion.

IRS says it expects most estates of people who are married will want to make this “portability election,” including people who are not otherwise required to file an estate tax return.  The only way to make the election is by properly and timely filing an estate tax return on Form 706.  Estates of those who died before 2011 are not eligible to make this election.

Another interesting feature of this new scheme is the fact that IRS has authority to examine the return of a predeceased spouse even after the statute of limitations on assessment has expired, to make determinations regarding the deceased spouse’s unused exclusion amount.

Estates unable to meet the Form 706 filing deadline can request an automatic extension (six months) by filing Form 4768 before the original Form 706 due date, which is nine months after the date of death.

Got questions about estate tax? Get answers in Nolo’s Estate and Gift Tax FAQ.