Final IRS regulations will help married couples pass more estate assets to heirs without creating complicated trusts. The “portability” rules allow surviving spouses to retain the unused portion of a deceased husband or wife’s estate exemption – if the rules are followed.
Here’s what you need to know.
The estate tax exemption for 2015 is $5.43 million. That’s the amount you can pass to heirs free of estate tax. Before portability, any leftover exemption was lost unless the estate plan included trusts that helped shelter the unused amount. Now the surviving spouse can elect to receive the unused exemption.
There is an important catch to the portability tax break, however. An estate tax return must be filed within nine months of the date of death to make the election (unless an extension has been granted). That’s true even if a return might not otherwise be required. At first glance, filing an estate return might still appear unnecessary if the couple’s combined estate is significantly below the exemption amount. But keep in mind that the survivor’s estate could grow substantially over time and be subject to estate tax years later.
Portability also allows the surviving spouse to bring the combined estate exemption into a second marriage. There is a limitation – you can only use the estate exemption of your most recently deceased spouse.
This federal tax break does not affect state estate taxes, so the rules of your state must be taken into account. We encourage you to contact our office for assistance when making or updating your estate plan.