Portability Election Rules Clarified

Last week, IRS issued temporary and proposed regulations which provide guidance relative to the election of the “portability” of a deceased spouse’s unused exclusion (DSUE) to the benefit of the surviving spouse.

The DSUE is the lesser of (1) the basic exclusion amount, or (2) the excess of the basic exclusion amount of the last deceased spouse dying after December 31, 2010, of the surviving spouse over the amount on which the tentative tax on the estate of the deceased souse is determined.

An executor electing portability must do so on a timely-filed estate tax return – i.e., a return filed within nine months of the date of death (plus the six month extension period if necessary).   Note that executors of estates not otherwise required to file an estate tax return do not have to report in detail the value of certain property that qualifies for the marital or charitable deduction.  An executor who chooses to make use of this special rule must nonetheless estimate the total value of the gross estate.

An executor must make an affirmative statement on the estate tax return if he chooses to “opt out,” of having the portability rules apply.  If no estate tax return is required for the decedent’s estate under IRC Section 6018(a), not filing a timely return will be considered to be an affirmative statement signifying the decision not to make a portability election.