If a married couple has significant wealth and is expecting to owe Federal estate taxes upon the death of the second spouse, current Internal Revenue Service Regulations allow a surviving spouse a period of five (5) years from the death of the first spouse, to elect portability.
Under current law, there is a $12,060,000 exemption from Federal estate taxes through the year 2025 (estimated to drop by approximately one-half in the year 2026), per person for estate taxes and gifts to children or other non-spouse beneficiaries during life or upon death. Any amounts above the exemption could incur up to 40 percent in estate taxes.
Even though a surviving spouse may inherit all of the deceased spouse’s assets free of estate taxes, there may be estate taxes owed after the death of the surviving spouse. Portability allows a surviving spouse the ability to transfer a deceased spouse’s unused exemption amount for estate and gift taxes to the surviving spouse. This would allow the deceased spouse’s unused exemption to become available for the application to the surviving spouse’s subsequent transfers during life or upon death.
However, a surviving spouse may elect portability, allowing the spouse to have the deceased spouse’s unused exemption amount, as well as their own exemption amount, which would allow a $12,120,000 exemption from Federal estate taxes (under current law).
Portability can be elected by a surviving spouse within five (5) years from the date of death of the spouse by filing a Federal Estate Tax Return (Form 706) with the Internal Revenue Service.
Provided the Form 706 is filed within the five (5) year period, it will not be necessary to request the Internal Revenue Service to issue a private letter ruling, as was required under previous Internal Revenue Service Regulations.