There is a federal estate tax to contend with if you pass away in possession of a considerable amount of wealth. At the present time there is a $5.34 million per person credit or exclusion. If you are not transferring assets that exceed this amount you don’t have to worry about the federal estate tax.

On the other hand, if you do have assets that exceed the amount of this exclusion, you must take legal steps to gain estate tax efficiency.

Question of Portability

In many if not most cases, the wealth that is accumulated by a married couple is the product of a combined effort. Therefore, you would logically think that a surviving spouse could use the exclusion that his or her deceased spouse was entitled to utilize. After all, two people contributed to the accumulation of the wealth, so there should be two exclusions available to the survivor.

Tax experts refer to this subject as the matter of estate tax exclusion portability.

Though it may seem unfair, prior to 2011 the estate tax exclusion was not portable. A surviving spouse could not use the exclusion that was afforded to his or her deceased spouse.

A tax relief act was passed at the end of 2010, and it temporarily allowed for portability in 2011 and 2012. After the enactment of the American Taxpayer Relief Act of 2012, portability was made permanent.

However, portability is not automatically bestowed upon you by the Internal Revenue Service after your spouse passes away. You must file Internal Revenue Service Form 706 to take advantage of your right to portability.

There is a filing deadline. A representative of the estate in question must submit the form within nine months of the passing of the decedent. It is possible to request a six-month extension.

According to a recent article in Forbes, many people who could have opted for portability failed to do so because they were not aware of its availability. The IRS was inundated with requests to expand the deadline.

They have in fact extended the deadline for filing Form 706 if your sole purpose for filing is to opt for portability. If the decedent passed away between January 1, 2011 and the last day of December in 2013 you can request an extension.

Ongoing Process

We wanted to pass along this breaking news for pragmatic purposes. If you missed the deadline because you were unaware of the existence of portability, now is your chance to take advantage of it.

However, as an aside we would like to point out the fact that estate planning is an ongoing process. This situation demonstrates the fact that laws are always changing. You should consult with your attorney regularly to be sure that your existing estate plan is always up-to-date in light of ongoing changes to tax laws.

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Ryan M. Denman and Dennis D. Duffy

Duffy Law Office, PLLC