The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was passed in December of that year. Among other things, it made the federal estate tax exclusion portable between spouses.
Portability was made permanent when the Taxpayer Relief Act of 2012 was passed.
What Is Portability?
Portability is the ability of a surviving spouse to use the estate tax credit or exclusion that was afforded to his or her deceased spouse. Prior to the 2011 calendar year, your exclusion died when you did.
When you pass away your spouse does not automatically become entitled to your exclusion. The executor of the estate (or some other representative) must file IRS Form 706 to opt for portability. This form must be filed within nine months of the decedent’s passing. Internal Revenue Service regulations allow for a six-month extension if you need more time.
As it turns out, a lot of people missed this deadline because they were not aware of the fact that the estate tax exclusion had been made portable.
There are also those who didn’t file for portability because they were engaged in same-sex marriages. Since the Supreme Court struck down the constitutionality of the Defensive of Marriage Act, portability is now extended to individuals of the same sex who are legally married.
There is good news to report for those who missed the deadline. The Internal Revenue Service has announced the implementation of Internal Revenue Procedure 2014-18. This extends the deadline for filing Form 706.
The form can be filed if the decedent passed away between the beginning of 2011 and the end of 2013 assuming the individual in question was an American citizen.
Something to Take Away
There is something to take away from this news beyond the practical implications. Many people procrastinate when it comes to estate planning. They put it on the back burner. Because they were hesitant to deal with it in the first place, when they do put a plan in place they put the documents in a lock box somewhere and forget about them.
Meanwhile, life goes on. Years can pass, and years can turn into decades. The estate plan that you created back in the day may no longer be appropriate in light of your current life situation.
Estate planning should be viewed as an ongoing process. We recently posted about the value of estate plan reviews, and this portability issue provides a good example of the type of thing that can go unnoticed.
You also want to make sure that you get good advice. Many people that ultimately missed the deadline did not know that the exclusion had been made portable because they did not receive informed counsel. Others who may have heard about portability may not have been properly informed with regard to the correct filing procedure for Form 706.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.