The Internal Revenue Service has just issued temporary and proposed regulations aimed at simplifying the handling of portability elections in estate tax law.
The portability provision currently in the estate tax law allows, in general terms, that if one spouse does not fully utilize their entire $5 million applicable exclusion amount, the unused portion can be used by the surviving spouse's estate. This provision was added by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 for estates of decedents dying after 2010. It will expire at the end of 2012 unless it is extended.
The temporary and proposed regs in Reg. 141832-11 and T.D. 9593 make the process easier for estate executors.
"The goal is noble," said Larry Peck, a New York-based estate planning attorney. "The idea is to protect clients who don't have wills, or who go to lawyers who are general practitioners and end up with no wills or simple wills, and where a sizeable estate can lead to wasting of the exemption of the first-to-die."
But just because you have portability doesn't mean you end up ahead, Peck cautioned. "With portability, there's no inflation adjustment to account for the time value of money between the first and the second death," he explained. "The answer to that issue is a credit shelter trust, which can be set up in a will or as a revocable trust, at the death of the first spouse to die.
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