A major issue addressed in estate planning is taxes: federal taxes, gift taxes, state taxes, and estate taxes.
Tax considerations, with an eye towards minimizing taxes as they apply to a person’s estate, is a general goal of estate planning.
Portability and “the 706” (as we refer to it), can be an important tax strategy for many estates.
Granted, Florida does not have estate taxes, gift taxes, or inheritance taxes.
But that doesn’t mean your estate will not be subject to taxes.
There are still federal taxes to be considered. So, understanding portability and the 706, as well as planning ahead with an estate and probate lawyer makes good sense.
As you might expect, taxes are complicated. And making decisions regarding various tax strategies takes some specialized knowledge and careful planning. So please consult an experienced estate and probate lawyer to assist you with this.
What is the “706”?
Because portability is far more complicated than the 706, we’re going to start with the 706.
What is it, you ask?
The 706 simply refers to the IRS estate tax return form that must be filed 9 months after a person’s death to make a “portability election.”
While the answer to “what is the 706” may be simple, filling out the form and complying with all IRS requirements is not.
The IRS has strict filing deadlines for the 706. The initial due date is nine months after the date of death. It may be possible to receive a single 6-month extension, however, the extension must be requested before the initial 9-month due date has passed.
Also, the form can be costly and time-consuming to prepare as it requires the personal representative to gather a significant amount of information regarding the decedent’s estate. As always, it is best to enlist the assistance of an experienced estate lawyer.
What is Portability?
Here’s where things get a bit more complicated.
Portability, for purposes of estate planning, refers to a feature of the tax code which allows a surviving spouse the right to transfer to himself/herself any unused portion of the deceased spouse’s estate tax exemption.
To understand how this works, you must first understand that the tax code provides an exemption from federal estate tax for every individual in the amount (for 2022) of $12,060,000. This means that each individual may pass on to his/her beneficiaries (other than his/her spouse), up to $12,060,000 without triggering the federal estate tax. The money cannot be passed on to a spouse because a surviving spouse is not subject to estate tax due to the unlimited marital deduction.
If the decedent leaves his entire estate to his spouse, the exemption amount is considered to be “unused.” Portability, then, is a procedure that allows the surviving spouse to transfer his/her deceased spouse’s unused exemption (DSUE) to the surviving spouse’s estate.
In this way, the surviving spouse can add to his/her own estate and ultimately pass on up to $24,120,000 (in 2022) to his/her children, grandchildren, or other beneficiaries, without having to pay federal estate tax.
There are, of course, a number of requirements that must be met. For example, to make the portability election, the personal representative of the deceased spouse must file an estate tax return for the deceased person’s estate, using IRS Form 706, and the filing must be timely.
The IRS has strict deadlines for filing the 706. However, the IRS recently streamlined the process for requesting an extension, so that the personal representative may now get an extension of up to 5 years from the date of death to file the return and elect portability.
Whether you should file the 706 and elect portability is something you should discuss with your estate and probate lawyer. It can help you to guard against future reductions in the federal estate tax exemption that would subject smaller estates to federal estate tax, and it can be a good strategy for younger couples where there is a possibility that a surviving spouse may accumulate significant wealth in the future.
Contact Us to Learn More About Portability and the 706
If you have estate planning needs, protecting your family is just one phone call away. At the Law Offices of Samantha J. Fitzgerald, we create estate plans as individualized as you are. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Connect with us on Facebook or Instagram or call us at 954-580-3690.