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New Estate Tax Rules

Last update on: Jun 22 2020

The 2010 tax deal created some new estate and gift tax rules, for at least two years through the end of 2012. One of the innovations is the portability of the estate tax credit. When a married person dies and his or her estate does not use his full $5 million estate tax exemption equivalent, the surviving spouse can add the unused portion to his or her own $5 million exemption. Portability means a married couple has a true combined $10 million estate tax exemption.

The problem so far has been that estates had no idea how to take advantage of portability. The IRS has been extending the filing deadline for estate of those who passed away in 2011, pending new forms and rules.

The IRS now has issued regulations that explain how estates can elect portability. Keep in mind, a surviving spouse doesn’t get the portability unless the estate affirmatively elects it. Those estates that already filed returns before the regulations were issued can file amended returns if they want.

If one of your clients dies in 2011 or 2012 leaving a surviving spouse behind, it will almost always be advisable to file an estate tax return, regardless of whether a return is otherwise required. If, for instance, a couple has a combined estate of $2 million and one of the spouses dies in 2011 at the age of 55, no estate tax return would be required (unless, of course, the decedent spouse made $5 million in gifts during his or her lifetime).

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