The IRS issued temporary regulations on how to elect to use a
deceased spouse’s unused exclusion from estate taxes, also known as
the portability election (T.D.
9593). The rules apply to married spouses where the death of the
first spouse occurs on or after Jan. 1, 2011, and are therefore
retroactive. The IRS also issued identical proposed regulations (REG-141832-11).
A lifetime exclusion amount ($5.12 million for 2012) is allowed in calculating the gift and estate tax for each individual. Beginning in 2011, spouses can use the unused amount of their deceased spouse’s lifetime exclusion amount if the estate of the deceased spouse elects this treatment on an estate tax return.
Under the regulations, to elect portability, the estate of the first deceased spouse must file an estate tax return by the due date of that return (nine months after death plus any extension), even if the estate would not otherwise be required to file a return under Sec. 6018(a). (See Notice 2012-21 providing for an extension of time to file an estate tax return for the estates of certain decedents who died in the first half of calendar year 2011.) To make the election, the estate must file a timely “complete and properly-prepared return” (Temp. Regs. Sec. 20.2010-2T(a)(2)). For estates that are not required to file a return under Sec. 6018(a), the executors do not have to report the value of certain property that qualifies for the marital or charitable deduction. If an executor chooses to make use of this special rule, he or she must estimate the total value of the gross estate (including the values of the property that do not have to be reported on the estate tax return under this provision), based on a determination made in good faith and with due diligence regarding the value of all of the assets includible in the gross estate.
To opt out of the election, if an estate tax return is required to be filed under Sec. 6018(a), the executor must make an affirmative statement on the estate tax return signifying the decision to have the portability election not apply. If no estate return is required under Sec. 6018(a), not filing a return will be considered to be an affirmative statement signifying the decision not to make a portability election.
The election must be made by the estate’s executor. However, if there is no executor, any person in actual or constructive possession of any property of the decedent (a nonappointed executor) may make the election. A portability election made by a nonappointed executor cannot be superseded by a contrary election made by another nonappointed executor of the same decedent’s estate.
The regulations require the executor to calculate the amount of the unused exclusion on the deceased spouse’s estate tax return, and they contain rules for properly calculating that amount. The rules explain how the exclusion applies in a number of specific situations, for example, in cases where the surviving spouse has multiple deceased spouses.
To protect the IRS, the regulations permit it to examine the return
of a deceased spouse whose spouse had elected portability, without
regard to the statute of limitation under Sec.
6501. Since the surviving spouse may live many years after the
death of the first spouse, this rule is intended to allow the IRS to
make any adjustments that allowing portability might require.