Ugly Donkeys Get Beautiful Results in Tax Court
The following is a reprint from the 2022 University of Illinois Federal Tax Workbook, Volume A, Chapter 3: Rulings and Cases. The video is a discussion of the case between…
May 11th, 2023
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 introduced the concept of portability of the basic exclusion amount between spouses as an additional means of avoiding ill consequences from over-qualification of the marital deduction. For years after 2010, the estate of the first spouse to die can elect to “port” the unused basic exclusion amount of the deceased spouse to the surviving spouse. In theory, therefore, over-qualification of the marital deduction can now be avoided by making a portability election in the estate of the first spouse. Because none of the first spouse’s basic exclusion amount was used due to the marital deduction, if a portability election is made, the decedent’s entire $12.06 million credit is available to the surviving spouse’s estate. This results in the survivor having $24,120,000 of applicable exclusion amount and (ignoring any increases or decreases in the basic exclusion amount at the death of the survivor) therefore no estate tax liability. The amount of exclusion ported from the deceased spouse’s estate is known as the DSUE.
At first glance, making a portability election might seem to be an easy choice, and in many cases that may be so. In the real world, however, whether to make the election is a much more complex decision.
Observation. Even with the simplified rules, preparation of Form 706 to elect portability is not a simple task. Practitioners who are not familiar with preparing Form 706 should be cautious in doing so. Use of appropriate return preparation software rather than fillable PDF forms is recommended.
Practitioner Planning Tip. Practitioners should determine whether there is a post-2010 prenuptial agreement before recommending a portability election. If there is one, consider getting a legal opinion of its effect, if any, on the decision to port.
This is a reprint from the 2022 University of Illinois Federal Tax Workbook, Volume B, Chapter 4: Tax Considerations in the Distribution of Estate Assets, written by Kenneth Wright. To read more about portability and some of the more common and important basis rules affecting property distributed from a decedent, the Federal Tax Workbook is available for purchase.
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