A spouse of a decedent dying after December 31, 2010 may take advantage of the unused portion of his or her deceased spouse’s federal estate tax basic exclusion amount, which, in 2011, is $5,000,000. (Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312). This ability to transfer the unused exclusion is referred to as “portability.” Portability is not available with respect to decedents dying on or before December 31, 2010.
Generally, only if an estate has a gross amount in excess of $5,000,000 an estate tax return is required to be filed. However, the IRS’s recent guidance provides that in order to make the unused portion of the basic exclusion portable in favor of the surviving spouse, the decedent’s estate must file a timely (including any extension) Form 706 Estate Tax Return, regardless of whether or not the Form 706 would be otherwise required. (IRS Notice 2011-82).
In order to reduce the risk of inadvertently missed elections, the IRS, in the same notice, has also reported that “by timely filing a properly-prepared and complete Form 706, an estate will be considered to have made the portability election without the need to make an affirmative statement, check a box, or otherwise affirmatively elect, on the Form 706.” In the event that an estate does not want to elect for portability but is otherwise required to file Form 706, the executor must comply with the necessary steps stated on the Form 706 instructions to avoid making the election.