Portability

On December 17, 2010, President Barack Obama signed into law the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010, P.L. 111-312 (“TRA 2010”), which enacted a new system of portability of exclusion amounts for gift and estate tax purposes by amending Code Section 2010(c)(2) and adding new sections 2010(c)(3) through (6).  These provisions are available for the estates of those who die in the year 2011 and 2012.  Currently, these provisions are set to expire on December 31, 2012.

Congress did grant to the IRS the ability to create regulations to govern the administration of the Deceased Spouse's Unused Exclusion Amount ("DSUEA").  On June 15, 2012 the IRS issued new temporary and proposed regulations governing the application and filing of DSUEA.  Overall these regulations were very favorable for taxpayers and may open up new opportunities.  My gut instinct tells me that the IRS is thinking that DSUEA might be with us for the future given all the energy and effort put into these regulations which, in theory, would only be for a time frame of a little more than the next 6 months.

A timely filed Form 706 Estate Tax Return is still the vehicle to elect DSUEA.  Failure to file the return timely is an election not to preserve the decedent's DSUEA for the benefit of the surviving spouse.  Widows and widowers should consult tax counsel, even if the estate is not subject to the filing of a federal tax return, to consider whether one should file to preserve DSUEA in the years ahead.  Given the projected decrease in the basic exclusion amount for 2013 and the increase in the tax rate from 35% to 55%, the portability election may well become a bedrock of estate planning going forward.  Ultimately, Congress will have to tell us what the rules are going forward.  Stay tuned.