The Little-Known Trick for Reducing Estate Taxes: Electing Portability

Estate taxes, also known as inheritance taxes, are taxes imposed on the transfer of assets from a deceased individual to their beneficiaries. In the United States, estate taxes are imposed by the federal government and are due nine months from the date of death. There is an exemption, but in some cases it could be beneficial to file to secure their spouses exemption.

For the tax year 2023, the federal estate tax exemption is $12.9 million per individual. This means that any estate valued at less than $12.9 million will not be subject to estate taxes. This is an increase from the previous year's exemption of $11.7 million.

One reason someone would file for "portability" is to allow a surviving spouse to use any unused portion of the deceased spouse's estate tax exemption. This can be especially beneficial for married couples with a significant difference in the value of their estates.

Filing for portability, also known as "electing portability," is a process that allows a surviving spouse to use any unused portion of the deceased spouse's estate tax exemption. This can potentially save a significant amount of money on estate taxes for the surviving spouse's estate.

The process for electing portability begins with the filing of the deceased spouse's estate tax return, which is typically due nine months after the date of death. The return, Form 706, must be filed even if the estate is not subject to estate taxes. On the Form 706, the executor of the estate must indicate their intention to elect portability by checking the appropriate box.

It's important to note that the election for portability must be made on a timely filed estate tax return, which is generally due within 9 months from the date of death, including any extensions. If the executor fails to file the Form 706 or file it after the deadline, the surviving spouse will lose the ability to use the deceased spouse's unused exemption.

Once the Form 706 has been filed and the executor has elected portability, the surviving spouse can then use the deceased spouse's unused exemption when filing their own estate tax return. This is done by completing and attaching a Form 706 to the surviving spouse's estate tax return, and indicating that they are electing to use the deceased spouse's unused exemption.