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“Proposed and Temporary Regulations Addressing Portability”

In June, the Internal Revenue Service issued proposed regulations and temporary regulations addressing the portability of a deceased spouse's unused federal estate tax exemption.

August 2012

In June, the Internal Revenue Service issued proposed regulations and temporary regulations addressing the portability of a deceased spouse’s unused federal estate tax exemption.  These regulations are “taxpayer friendly” and clarify several items which have been distressing fiduciaries and tax preparers.

Regulation highlights:

  • Estates which are below the threshold required to file a federal estate tax return may still elect portability by filing Form 706.  To help keep estate administration costs down, taxpayers may use “estimates”.
  • If no executor or administrator is required to be appointed for the estate, portability may be elected by the “constructive” executor under Code Section 2203, such as a trustee or the person in possession of the decedent’s property.
  • The deceased spousal unused exemption amount (DSUEA) which may be carried over is redefined and expanded to include multiple spouses’ DSUEAs.
  • When gift tax has been paid by the first spouse to die, there is no “clawback” in the estate of the second spouse to die.
  • “Ordering rules” have been provided which address which spouse’s exemption amount is used first when the surviving spouse makes lifetime gifts (when surviving spouse makes a gift, the surviving spouse uses the deceased spouse’s DSUEA first, not the surviving spouse’s exemption).

Hearings on the regulations are planned for this autumn.  Stay tuned!


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