Basics of Estate Planning: Portability

By Ronald A. Fatoullah, Esq. and Eva Schwechter, Esq.

{2:57 minutes to read} When a loved one dies, many people are unsure of how to proceed with respect to settling the decedent's estate. Specifically, people are often unclear on what taxes will be due, and which forms they will be required to file. In terms of the federal estate tax, a federal estate tax return does not need to be filed unless the decedent's taxable estate exceeds the federal estate tax exclusion amount. Please note that a discussion of the implications for the state estate tax is beyond the scope of this article; the focus is solely on the federal estate tax requirements.

In 2017, the federal estate tax exclusion amount is $5.49 million for an individual or $10.9 million for a couple. Thus if a person dies with a taxable estate of less than $5.49 million, no estate tax will be due. However, it may still be prudent to file an estate tax return (Form 706) on behalf of the decedent's estate so as to elect "portability." Portability is a means by which the surviving spouse can "use" the deceased spouse's unused portion of his or her estate tax exclusion amount.

For example, if John Doe passed away in 2017 with a taxable estate of $3 million, the unused portion of his federal estate tax exclusion amount would be $2.49 million. Thus no estate tax would be due and John's estate would not be required to file an estate tax return. However, Jane would only be able to utilize John's unused exemption (thereby increasing her estate tax exclusion amount from $5.49 million to $7.98 million) if she filed an estate tax return for John, electing for "portability." Electing for portability can preserve flexibility for the second spouse, even if an estate tax return is not otherwise required.

The estate tax return is a complex document and should be completed and filed by a professional. The estate tax return must be filed in a timely manner to be effective. Form 706 is due nine months from the date of death of the decedent. In the event additional time is needed, a six-month extension for filing can be requested on or before the due date of the return. Surviving spouses of decedents who died recently should consult with an estate planning attorney to discuss their own unique circumstances. The determination of whether to file an estate tax return to elect portability may be an appropriate and necessary tax planning tool in the context of a broader estate plan for the surviving spouse.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Eva Schwechter is an elder law attorney with the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.