New York Estate Planning & Elder Law Blog
PORTABILITY
In 2011 Congress revamped the estate and gift tax laws and legislated that the federal estate and gift tax exclusion amount was $5 million. This amount is annually adjusted for inflation; the 2015 maximum is $5.43 million. Any estate values less than this amount are excluded from estate and gift tax liability. So, for example, if a husband passes away and leaves $4 million to his wife, the wife has an additional $1.43 million that she carried over to her own estate, as well as the standard $5 million that she is entitled to for her own estate if she also passed away in 2015 before any federal estate tax liability is incurred. Consequently, under the simple example provided, the wife is entitled to $6.86 million in exemptions before incurring any federal estate tax liability. If the surviving spouse remarries, he/she still retains the right to the portability of the unused estate tax. The portability is only effected if the second spouse of the surviving spouse also pre-deceases the original surviving spouse then the portability from the first spouse is extinguished. The idea and principles of estate tax portability do not apply to generation skipping transfer taxes, which is when a grandparent leaves money to his or her grandchildren.
IRS ALLOWS A DO OVER
The IRS promulgated rules regarding the carry over or portability of unused estate or tax exclusion in July, 2015. The best part of the new regulations is that the IRS will allow the surviving spouse to refile the estate tax return to apply for the tax exclusion transfer. The IRS treats estates below the exclusion and above the exclusion differently. Congress delegated rulemaking authority to the IRS to decide how to implement the letter and spirit of the statute creating the estate tax, found at 26 U.S.C. § 2010 as well as the statute creating the gift tax, found at 26 U.S.C. § 2505. Part and parcel of the regulation allows for the surviving spouse of an estate below the estate and gift tax threshold to apply for the exclusion transfer. If the estate is above the estate and gift tax threshold, the IRS requires the estate to apply for the exclusion as part of the estate tax return either as part of the original estate tax return or by resubmitting the estate tax return. The IRS is allowing estates to refile the estate tax return up to 15 months after the decedent’s date of death to elect for portability of any unused estate tax exclusions, which is six months longer than normal. If your spouse’s estate is far below the estate tax threshold you may be tempted to forgo filing the right to portability of the unused portion of the estate tax. That is not necessarily a good idea, in the event that you obtain a windfall of money, through the lottery, through another estate inheritance or any other number of means.
Any amended estate tax return or estate and gift tax decision should only be decided after a full and appropriate consultation with an experienced estate planning attorney.