If you have a spouse who passed away after December 31, 2010 but before December 31, 2013, there is a limited time frame by which you may file to obtain your spouse’s estate tax exemption. This is what is known as “portability,” but the deadline to file for this one-time exemption is December 31, 2014.
Portability is a tax break between spouses. This exemption is available for all married couples, including same-sex couples, and is also known as the “marital deduction” – the amount that may be left tax free to a surviving spouse. In the past, if the exemption was not used, it was lost. Now, the exemption is available to be transferred to a surviving spouse within a limited time period, and so surviving spouses should be motivated to file for this exemption.
When a person passes away and leaves all assets to their surviving spouse, then the surviving spouse “inherits” the deceased spouse’s $5 million federal estate tax exemption (adjusted by inflation). This occurs only if an estate tax return was filed timely (usually 9 months from date of death). With this special exemption that the IRS provides, if the tax return is filed by December 31, 2014, the portability exclusion may be transferred to the surviving spouse, thus giving the surviving spouse a potential $10 million in estate tax exemptions. Even in cases where the surviving spouse has $5 million or less, and is not expected to have an estate that would exceed $10 million, it may still be beneficial to file for the exclusion. Unexpected income, inheritance of assets, collection of a settlement, gains in a stock portfolio, or even a lottery win could mean that the surviving spouse’s estate does in fact reach that threshold, in which case estate tax protections would be in place. Note that after December 31, 2014, the opportunity to file for this exclusion is extinguished.
If you are a surviving spouse with a sizeable estate, or if you are the child of a surviving parent with an estate this size, you should contact an estate tax attorney or accountant who has assisted in the estate planning process, in order to file for the portability exclusion before the end of the year.
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