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Estate tax portability gives spouse joint $10 million estate tax exclusion

Our Alpharetta readers may not be aware of this aspect of estate planning, but Congress passed a new law last December that allows spouses to share the estate tax exclusion amounts with one another. This new feature of tax law is often referred to as estate tax “portability.”

Under the portability provision, married taxpayers may pass any unused exclusion amount to their spouse, which effectively means that married persons have a joint $10 million exclusion. So a spouse who uses $3 million of his $5 million exclusion amount may pass $2 million on to his wife, leaving her with a $7 million exclusion amount.

The important thing to remember about portability is that it isn’t automatic, and spouses wishing to make use of any remaining exclusion amount must file a federal estate tax form within nine months of the date of the deceased spouse’s death, unless there is an extension granted. A spouse wishing to acquire the remaining exclusion must file the form whether or not the deceased spouse has any taxable estate.

According to sources, there are no boxes to check or extra forms to fill out in order to elect the exclusion amount. It comes automatically with filing the return. In some situations, a surviving spouse will not wish to make use of the exemption. In those cases, the surviving spouse would need to indicate that they do not wish to make the portability election, either by attaching a separate note explaining that or by making a note on the upper part of the first page of the form.

Source: Forbes, “What’s Mine is Yours: IRS Issues Estate Tax Portability Guidance,” Kelly Phillips, Sep 30, 2011.