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Portability Rules for Decedents Who Died on or After June 12, 2015

Posted on: July 8th, 2015
estate tax portabilityEarlier this month, the Internal Revenue Service (IRS) released rules regulating the portability of unused estate tax exclusion to the surviving spouse (T.D. 9725). The IRS applies the final rule to estates of decedents with dates of death on or after June 12, 2015. 

Final Rule

Deceased spousal unused exclusion (DSUE) amounts could provide significant relief for surviving spouses. The estate tax exclusion for the 2015 tax year is $5.43 million. If a deceased spouse only used a small portion of this exclusion, the surviving spouse could potentially enjoy millions of additional dollars of exclusion in their own estate. One of the factors that affects DSUE is the surviving spouse’s citizenship as well as the decedent’s citizenship. Special circumstances apply to surviving spouses who are not U.S. citizens on the deceased spouse’s date of death. According to the recent update, the IRS is adopting and amending several temporary regulations issued three years ago (T.D. 9593):

Estates eligible to make the election. An executor may elect portability on behalf of the estate of a decedent survived by a spouse if the decedent dies on or after January 1, 2011. However, an executor of the estate of a nonresident decedent who was not a citizen of the United States at the time of death may not elect portability on behalf of that decedent, and the timely filing of such a decedent's estate tax return will not constitute the making of a portability election.

Portability Extensions

The final regulations clarify that a regulatory extension of the portability election deadline will be granted only to estates with gross estate values below the Sec. 6018 threshold.

Portability and Qualified Domestic Trusts

Without proper planning, if the decedent is married to a non-U.S. citizen spouse, the entire estate over the $5.43 million exclusion would be subject to estate tax. Qualified Domestic Trusts (QDOTs) are tools that help mitigate this tax burden. When structured appropriately, assets transferred to a QDOT are not taxed upon the decedent’s death. Part of the temporary regulations involve redetermination of a decedent’s DSUE after estate tax payments are made from a QDOT. Read the full Special Rules for Qualified Domestic Trusts here.

Long Forms Remain

Just two months prior to the IRS’ recent announcement, the American Institute of CPAs submitted a recommendation for a streamlined version of the currently 53-page Form 706. The IRS did not accept the suggestion for a short form estate tax return due to accuracy and administrative complications.

Amending forms to reflect the final rules recently released by the IRS could demand substantial time and resources from an executor. Contact an estate planning attorney to ensure accuracy when administrating an estate for a loved one.

By Attorney Samantha Reichle
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