It Pays to be Married: an Explanation of the Unlimited Marital Deduction and Portability

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It pays to tie the knot, at least according to the IRS. The unlimited marital deduction is a provision in the U.S. Estate and Gift Tax Law that allows individuals to transfer an unrestricted amount of assets to their spouse at any time, free from tax. The unlimited marital deduction is considered an estate preservation tool because assets can be distributed to surviving spouses without incurring any estate or gift tax liability.

Keep in mind that the $23.4 million exemption per couple is not automatic.

The federal estate and gift tax exemption is currently $11.7 million per individual, meaning a married couple can exempt $23.4 million from estate and gift tax. The unlimited marital deduction allows you to leave all, or part, of your assets to your surviving spouse free of federal estate tax. However, if you want to use your pre-deceased spouse’s unused exemption—a move called electing “portability”, you must file a federal estate tax return at his or her death, even if the value of the estate is below the filing threshold and no tax is due. If you or your accountant do not know what portability is and do not elect it, your surviving spouse could be hit with a large federal estate tax on his or her death.

In order to elect portability of the decedent’s unused exclusion amount for the benefit of the surviving spouse, the estate’s representative must timely file a federal estate tax return. The due date of the estate tax return is nine months after the decedent’s date of death; however, the estate’s representative may request an extension of time to file the return for up to six months.

If the estate representative did not timely file an estate tax return the availability of an extension of time to elect portability depends on whether the estate has a filing requirement, based on the federal estate exemption for the year of death. If the estate is required to file an estate tax return based on the total value of the estate, there is no additional extension of time to elect portability. However, if the estate is below the exemption amount, Revenue Procedure 2017-34 allows for the election of portability if a federal estate tax return is filed within two years of the death.

Portability is a useful tool for married couples with taxable or potentially taxable estates. A 2021 exemption of $11.7 million could be preserved for the surviving spouse if the exemption decreases by the time the second spouse dies. It is recommended that upon the death of the first spouse, that the survivor consult an estate planning attorney to review whether a federal estate tax return should be filed to elect portability.

Burner Law Group, P.C.

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