Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

Late Portability Election

“Portability” allows a surviving spouse to add a deceased spouse’s unused estate tax exemption onto his or her own exemption. Each spouse has an estate tax exemption amount of $5 million, which is indexed for inflation after 2011. In 2017, the exemption is $5,490,000. To elect portability, a client must timely file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, which is due 9 months after the decedent’s date of death, but the due date can be extended for six months if a request for extension is timely filed.

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Year-End Tax Planning

Annual Exclusion Gifts. The gift tax annual exclusion is $14,000 for 2016, and stays the same for 2017. You can make gifts of this amount to each of any number of people in a calendar year and not have to file a gift tax return, and the gifts will not use up part of your estate tax exemption. You can also make gifts of an unlimited amount by directly paying a donee's medical expenses to the provider, or tuition to the educational institution. If you make the gift by a check, the donee must deposit the check and the amount must clear your account prior to the end of the year.

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Don't Forget Portability!

I have met with two surviving spouses so far this year who did not file a federal estate tax return in their deceased spouse's estate. The deceased spouse did not have sufficient assets to require the filing of a return, but an opportunity was nevertheless lost. The deceased spouse's unused estate tax exemption is only "portable" to the surviving spouse's own exemption (added on to it) if the Form 706 is timely filed (within 9 months after date of death, or 6 months after that if an extension request is timely filed). Treasury granted a one-time extension until December 31, 2014 for couples who had failed to file, but that was because with the federal recognition of same-sex marriage, a lot of couples who did not think they could have portability, now could after the Supreme Court's Windsor decision. Whether Treasury will grant another similar extension in the future is unknown. But remember that in order to possibly double the surviving spouse's estate tax exemption through portability, an estate tax return must be filed.

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December 31, 2014 Deadline for Portability Return

Rev. Proc. 2014-18 gives surviving spouses an extended deadline for filing a U.S. Estate Tax Return (Form 706) in order to add the deceased spouse's unused exclusion amount to his or her own estate tax exemption. However, such a return must be filed by December 31, 2014. Ordinarily, a "portability" return must be filed by the due date of the return: nine months after date of death, or, if an extension is requested, 15 months after date of death. This extended deadline only applies to estates of decedents with gross estates less than the filing threshold: $5,340,000 for decedents dying in 2014.

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Portability of Unused Estate Tax Exemption

As we have reported in the past, the 2010 Tax Act created a new concept: the "portability" of a deceased spouse’s unused estate tax exemption to the surviving spouse’s exemption.  This means that the exemption of the first spouse to die can be added on to the exemption of the surviving spouse (perhaps doubling it).  The current estate tax exemption is $5,340,000 for decedents dying in 2014.  The deceased spouse’s unused exemption (DSUEA) can only be added onto the surviving spouse’s exemption by timely filing a U.S. Estate Tax return (Form 706) that is due 9 months after the decedent’s death, or if an application for exemption is timely filed, 15 months after date of death.  Ordinarily, a Form 706 is only required to be filed if the gross estate exceeds the applicable exemption ($5 million as indexed for inflation after 2011).  But as we have noted in prior newsletters and blogs, even if the first spouse’s estate does not exceed the exemption, a surviving spouse should consider filing a Form 706 to increase the surviving spouse’s exemption through portability.  Many people have not filed such a return, and those in same-sex marriages would not have known that they could have filed such a return until the decision by the U.S. Supreme Court in U.S. v. Windsor last June. 

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