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Surviving spouses should file estate tax return for portability benefit

We have previously written about estate tax portability on this blog. Portability, as we have noted, refers to the provision of the 2010 Tax Relief Unemployment Insurance Reauthorization and Job Creation Act which allows surviving spouses to claim any estate tax exemption amount which was unused by their spouses. Portability is only available for those whose spouses die after December 31, 2011.

As a recent Forbes article points out, portability is increasing costs to those engaged in estate planning and loading the IRS down with a great many more estate tax returns than have been filed in recent years. And that, despite the fact that the smallest number of estates in 75 years will actually owe any estate tax in 2011.

Despite these downsides of portability, it is clear that spouses who want to do prudent estate planning should take advantage of it. Part of the trick of taking advantage of portability is filing an estate tax return and paying any taxes owed within nine months of a spouse’s death. Even if no taxes are owed, an estate tax return must be filed to take advantage. If the return is not field in time, the chance at portability is lost.

While it is clear that couples whose estates are close in value to the current $10 million exemption amount should take advantage of portability, many smaller estates may also benefit from portability. That is because the estate tax exemption is scheduled to revert back to $1 million, along with a 55 percent top tax rate, in 2013.

While Congress may take action to extend the current estate tax exemption amount or raise it above $1 million, there is no guarantee of what will happen. It could also happen that the portability option is removed in future estate tax legislation.

Regardless of the many uncertainties, it is wise for couples engaged in estate planning to take advantage of portability by filing an estate tax return on the estate of a deceased spouse, regardless of whether taxes are owed or not. That will at least allow the possibility of obtaining the benefit of portability.

Source: Forbes, “The coming flood of estate tax returns,” Roberton Williams, November 30, 2011.

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