There is a $5.34 million per person federal estate tax exclusion in 2014. This is the amount that you can transfer to your heirs free of taxation. Anything that you are transferring that exceeds this amount is potentially subject to the federal estate tax.
If you are married, you may have a question about the federal estate tax exclusion: what happens to your exclusion after you die? Can your spouse use your exclusion?
This is the question of portability. Prior to the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 the estate tax exclusion was not portable. Your surviving spouse could not use your exclusion.
However, provisions contained within this piece of legislation made the estate tax exclusion portable for two years (2011 and 2012). Just prior to the sunset of this act a new tax relief act was passed called the American Taxpayer Relief Act of 2012. Under the terms of this measure the portability of the estate tax became permanent. A surviving spouse can in fact use his or her own exclusion and the exclusion that was allotted to his or her deceased spouse.
Portability is available, but it is not something that is automatically given to you by the Internal Revenue Service. A representative of the estate must file IRS Form 706 within nine months of the decedent’s passing to opt for portability. It is possible to request a six-month extension if you need one.
Because of the fact that changes to tax laws often fly under the radar, many people were not aware of the fact that the estate tax exclusion was made portable. This includes some financial advisers. There are also those who did not know about the need to file Form 706 to opt in.
The bottom line is that many people who could have utilized portability missed the deadline.
Portability was not afforded to married gay couples until the recent Supreme Court ruling giving gay couples equal rights with regard to federal benefits. There was an interim during which surviving spouses would have no reason to file for portability, because their same-sex marriages were not recognized.
Because of all of the above circumstances the IRS has decided to extend the deadline for filing Form 706. If the decedent in question died between the beginning of 2011 and the end of 2013, the form will be accepted.
This situation underscores why you should always keep in touch with your estate planning attorney. Tax laws are subject to change, and legislators are always entertaining new ideas.
Estate planning lawyers are up-to-date on current laws and filing requirements. When you develop an ongoing relationship with your attorney, he or she will be there to advise you whenever these relevant changes come down the pike.