In 2011 “portability” was introduced, allowing the personal representative of an estate the opportunity to preserve a deceased spouse’s unused federal estate and/or gift tax exemption amount for later use by the surviving spouse. Portability allows the surviving spouse to retain the exemption of his or her “last deceased spouse” which—in addition to his or her own federal estate and/or gift tax exemption amount—may be applied against future gifts by the spouse and/or his or her federal taxable estate upon death. Initially intended to expire after two years, on Jan. 2, 2013, the American Taxpayer Relief Act was signed into law and in part made portability permanent.
In order to preserve portability, a personal representative is required to make an election on a timely filed IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, following the death of the first spouse. If Form 706 is not filed within nine months of a decedent’s death, or within 15 months if a request for an extension of time to file the return was timely obtained, a personal representative may be permanently prevented from preserving portability. While most taxpayers who have been actively advised by tax counsel have timely made portability elections, there were also many taxpayers caught off guard. With the substantial federal estate tax exemption amount (currently $5,490,000), certain taxpayers have assumed that there was no need to file a Form 706 upon the death of a spouse, and the missed election was only discovered after the expiration of the nine-month window.
