For further information regarding these matters, please contact Mr. Jenney 248.740.5688 or via email. Under Code Sec. Only an executor Surviving spouses should seriously consider the potential advantages of filing Form 706 to make the portability election. However, if the 706 is filed only to elect portability, it can be filed anytime on or before the second anniversary of decedent’s death. If the estate is not In order for the surviving spouse to be able to use the DSUE amount, the Executor of the deceased spouse’s estate must file a properly prepared 706, United States Estate (and Generation-SkippingTransfer) Tax Return. the deceased spouse’s unused exclusion amount to the 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”[3] This number is adjusted annually by inflation. That mean, there is roughly 350,000 that you can pick up on new portability rules, but that can only be done if you file the 706 and make a timely election. The preparation of the 706 may not be needed for any other reason except to make the election to preserve the DSUE amount for the surviving spouse. Hopefully, the soon to be released regulations will provide some clarity. If you are filing a Form 706, in order for it to be deemed "substantially complete" (an actual IRS term with regulations that address it) you must complete all of the required schedules. those assets must be estimated and included in the Reg. The first spouse to die may leave his or her assets to the surviving spouse and the surviving spouse inherits assets from a deceased spouse estate tax free. to “check the box indicated” and not to complete You may apply for a discretionary additional extension of time to file the 706 only if you are an executor and are out of the country. Below are some highlights to the changes in Form 706: Portability Get it Automatically or Opt Out With a Check-Box Election. Reauthorization, and Job Creation Act of 2010, P.L. 6035 only applies to persons required by Code Sec. For those who merely filed the Form 706 estate tax return to claim portability, this change isn’t necessarily a problem, as few in such situations would have requested (or had any need) for a closing letter anyway. § 20.2010-2 (a) (1) provides that an estate that elects portability will be considered to be required to file a return under Code Sec. The deceased spouse’s unused exclusion and interest in the form of a surety bond or a section 6324A lien. The instructions This return is supposed to be filed within 9 months of the decedent’s death. This includes the estates which utilize ABC or AB Trust planning. A special rule in the portability regulations for calculating the applicable exclusion amount provides that any DSUE inherited from a prior deceased spouse can be preserved, even if an individual remarries and survives a second spouse, if the remarried spouse makes taxable gifts that use up the DSUE amount inherited from the first deceased spouse before he or she survives a second spouse. To properly make the portability election, the surviving spouse must timely file a federal estate tax return, known as the “United States Estate (and Generation-Skipping Transfer) Tax Return,” or “Form 706” for short. 6035 only applies to persons required by Code Sec. unused exclusion from one or more predeceased Extension of time to file. An executor of an estate that is not required to file Form 706 may make a private letter ruling request for an extension of time to file Form 706 in order to make a portability election. trust, and Section C to calculate the deceased check box to opt out of electing portability of the Source: Instructions for Form 8971 and Schedule A (01/2016) However, Leimberg reports here the IRS informally says it will not require Form 8971 where the 706 is filed for portability only. The assets of the living trust are being spilt into trust A and trust B. Under Regs. Executors who file Note. On that form, the estate can elect to transfer the DSUE to the surviving spouse. However, if the husband’s estate files an estate tax return and makes the election to transfer the DSUE, the wife’s exclusion is increased by $8 million. Note. Filing Form 706 solely to make the portability election While you as the executor may think no Form 706 is necessary because no federal estate tax … Under the Tax Relief, Unemployment Insurance Trustees, Personal Representatives of Estates and advisors now need to add to their checklist the requirement of having a discussion and an evaluation on whether a 706 should be filed on the death of the first spouse in order to preserve the DSUE amount for the surviving spouse. However, for those who do face an estate tax, the new process adds yet another step for the estate administrator to manage. 6018(b) to file returns. Capital Gains Another reason to file Form 706 even if your estate doesn't owe taxes is to establish the tax basis for gifts made to beneficiaries. Part 6 of Form 706 is where you elect Portability of Deceased Spousal Unused Exclusion (DSUE) for the estate. There is the potential for Section 9100 relief to file the portability election beyond the 9-month (plus any extensions actually granted) deadline. Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. instructions, the election is made by the executor of This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19. Executors who file Form 706 and do not wish to elect portability are told to “check the box indicated” and not to complete Sections B or C of Part 6. And there are other extensions you may be able to take even if you miss the two year deadline. and interest in the form of a surety bond or a section 6324A lien. The portability election is supposed to be made by filing a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 6018(a) who are filing to elect portability of PROC. Kemp Klein Law Firm201 W. Big Beaver Rd, Ste 600Troy, Michigan 48084. The 2015 Gift and Estate Tax Exclusion amount is $5.43 million. 2017-34 offers taxpayers a simplified method to extend the filing of Form 706, “United States Estate (and Generation Skipping Transfer) Tax Return” when filing for portability. The 706 must be filed within 9 months of the death of the deceased spouse. Close. In order to elect portability of the decedent's unused exclusion amount (deceased spousal unused exclusion (DSUE) amount) for the benefit of the surviving spouse, the estate's representative must file an estate tax return (Form 706) and the return must be filed timely. total value of the gross estate. opt-out is made by checking the box indicated in the decedent’s estate can either make or opt out of The husband dies with $3 million of assets in his estate, which he is leaving to the couple’s children. exclusion amount and for the executor’s use of the To qualify for the simplified election, the executor must file a complete and properly prepared Form 706, on or before the later of Jan. 2, 2018, or the second anniversary of the decedent’s date of death. deceased spouse’s unused estate and gift tax to make the election, and even estates that would not instructions provide a mechanism for estates that are Part 6 of the 706 addresses the DSUE amount. The Form 8971 instructions do not give notice as to whether Form 8971 must be filed for estates that file Form 706 solely to make the Code Sec. Form 706 and do not wish to elect portability are told (and Generation-Skipping Transfer) Tax Return. Many items need to be considered during the planning process, including the assets of the married couple, potential inheritance, ages of the clients, type of assets owned by the clients, growth and appreciation of the assets, income tax liability, step up in basis of assets, asset protection, settlor’s intent, second marriages, children of first marriage and GST exemption utilization. Reg. Code Sec. What's the Deadline to File Form 706 for Marital Portability? 2. Note. Section 1014(f)(2) states that the basis consistency rules apply only to property whose inclusion in the gross estate increases the estate's liability for federal estate tax (reduced by credits allowed against the tax). The release of Rev. Posted by 10 days ago. PROC. Note. The Estate Tax Portability Feature is Now Permanent – Should You File Form 706 Even If It Is Not Required? Executors Changes to charitable giving rules for 2020, QBI deduction: Interaction with various Code provisions, Tax-saving opportunities for the housing and construction industries. There will be no estate tax due. 6018(a). required to file a return, not filing the form will deceased spouse’s unused estate and gift tax estate intends to elect portability, timely filing A portability election can be made only on a Form 706 timely filed by the estate of a decedent dying after Dec. 31, 2010, and any attempt to make a portability election on a Form 706 filed for the estate of a decedent dying on or before Dec. 31, 2010, will be ineffective. Portability was part of the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 and portability became effective for married persons dying on or after January 1, 2011. Form 706 must be filed to make the election, and even estates that would not otherwise be required to file Form 706 (generally because of the size of the estate) must file to make the election. after 2010). The election is not automatic and the benefit will be lost if the return is not filed. The portability election is automatically made when Form 706 is filed. added to Form 706. The last deceased spouse rule provides that a surviving spouse’s applicable exclusion amount includes the DSUE amount inherited from the surviving spouse’s last deceased spouse. Assume a husband and wife each have $11 million of exclusion available. A portability election can be made only on a Form 706 timely filed by the estate of a decedent dying after December 31, 2010, and any attempt to make a portability election on a Form 706 filed for the estate of a decedent dying on or before December 31, 2010, will be ineffective. The instructions explain that if an estate intends to elect portability, timely filing (including extensions) a complete Form 706 is all that is required. If the basis consistency rules don't apply to property qualifying for the marital deduction and the purpose of Form 8971 is to help enforce the basis consistency rules, then we shouldn't need to issue the form to a surviving spouse when filing a portability-only Form 706. Attach a statement explaining why it’s impossible or impractical to file the 706 by the due date. unused exclusion amount of the deceased spouse (dying However, the value of Second, the 9-month timeline for filing an estate tax return and electing portability was increased to two years. The IRS posted revised instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, with guidance for electing the portability of a deceased spouse’s unused estate and gift tax exclusion amount. However, portability does not apply to the GST tax or to the GST exemption amount. The DSUE amount of $5.43 should be elected and transferred to the surviving spouse to create $10.86 million dollar estate and gift tax exclusion amount for the surviving spouse. If you don’t file for an automatic extension of time to file by the due date of the return, all is not lost. 2017-34 TO ELECT PORTABILITY UNDER or the charitable deduction. Because filing Form 706 by default Because the $3 million is less than the $11 million, no federal estate taxes are actually due and no return is required. Under the Act, if a spouse died after December 31, 2010 and the deceased spouse’s executor made the proper election on IRS Form 706 (called a “portability election”), the surviving spouse was entitled to use, for estate or gift tax purposes, the amount of the deceased spouse’s unused applicable exclusion amount. Some of these elections may require the posting of bonds or liens. The executor filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. check box to opt out of electing portability of the The January 2020 issue marks the 50th anniversary of The Tax Adviser, which was first published in January 1970. Proc. I’m completing form 706 for portability election only. The only way that her estate can claim portability, however, is if your executor files Form 706 even if you don't owe any taxes. Some of these elections may require the posting of bonds or liens. Filing Form 706 solely to make the portability election. Portability allows the first spouse to die to leave his or her unused estate tax exclusion amount to the surviving spouse. another reason, to opt out of the election. The only way that her estate can claim portability, however, is if your executor files Form 706 even if you don't owe any taxes. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Section A of Part 6-Portability of Deceased Spousal Unused Exclusion. The preparation of the 706 may not be needed for any other reason except to make the election to preserve the DSUE amount for … Instructions for Form 706 (09/2020) | Internal Revenue Service The gross estate is in the neighborhood of $4.5m. The Definition of Portability Portability is only available to married couples. Executors of The 706 can be useful for that. Section D must be completed the election. 2010(c)(5)(A), a portability election is effective only if made on a Form 706 that is filed within the time prescribed by law (including extensions) for filing such return. Sec. Bob's $11.58 million estate tax exemption went unused and Sue couldn't claim it without portability, so Sue can only pass on $11.58 million to her heirs free from federal estate taxes when she dies. The current exemption, if your husband died this year is 5.25M. prevent the election from being made. Form 706 Estate Tax Return Packages Returned If your Form 706 package was returned to you, ... including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return. If the surviving spouse of the first marriage who inherited a DSUE amount dies before the new spouse of the second marriage, then the surviving spouse of the first marriage who remarries may not be able to use the DSUE amount inherited. the election. One of the biggest developments in the estate and gift tax field to come out of the recent tax act (American Taxpayer Relief Tax Act Of 2012) is the permanence of the so-called “portability” provisions first established in 2010. Form 706 is due on or before nine months after the deceased spouse’s date of death; however, an automatic six-month extension can be requested by filing an IRS Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, on or before the due date for Form 706. Portability is not automatic and the election must be made on an estate tax return, the 706, within 9 months of death or within any extensions actually granted. This In the past, a decedent’s estate filing a Form 706 for the sole purpose of electing portability was generally subject to the same filing deadlines (9 months from the decedent’s date of death, with an automatic 6 month extension available) as a decedent’s estate that was required to file an estate tax return. by a surviving spouse if his or her spouse received an Don’t complete B and C. If no estate tax return was […] 6018 (a). Under Code Sec. This list details what do for each section of Part 6: Section A, Opting Out of Portability: Check the box to elect out of portability. unused portion of the exclusion amount. Certain estates that do not have to file federal level estate tax returns, should consider filing a Form 706. must be computed on the return. To elect portability, executors have to file an estate tax return (Form 706 runs 31 pages, and the instructions are 53 pages). Read our privacy policy to learn more. Reg. 20. Tax Section membership will help you stay up to date and make your practice more efficient. unused portion of the exclusion amount. PROC. b)The executor filing the Form 706 states at the top of the Form 706 that the return is “FILED PURSUANT TO REV. 2010(c)(5) portability election. Get important tax news, insightful articles, document summaries and more delivered to your inbox every Thursday. While somewhat confusing, the form offers helpful instructions for completing and filing the return. United States Estate the deceased spouse’s estate. 6075-1 and 20. spouse’s unused exclusion. 111-312, a surviving spouse can increase his or her The instructions explain that if an exclusion amount and for the executor’s use of the of certain property eligible for the marital deduction Learn more about portability and the Clayton election: If attacked, do you want to be Victor or Victim? Portability was made permanent by the American Taxpayer Relief Act of 2012 (“TRA 2012”). estates that are not required to file Form 706 under There will be no estate tax due. , and its final instructions. 2017-34 TO ELECT PORTABILITY UNDER IRS has just made it easier and much less costly to file a late Form 706 to elect portability. The IRS says that Form 706 must be filed "timely" - within 9 months of your spouse's death. Can I use the commercially available Federal Form 706 preparation software to complete the schedules for a Washington only filing of an estate tax return? Thus, if the first deceased spouse does not utilize his or her GST exemption amount, it will be lost. the executor is permitted to estimate the value in assets are being transferred to a qualified domestic a) The executor must file a complete and properly prepared Form 706 on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death. However, where the surviving spouse's estate is not large enough to benefit from portability right now, the decedent's estate may still want to file a portability election just to be safe. See the Instructions for Form 706, Form 706-NA, or Form 706-A for more information on the filing requirement for those forms. According to the The 706 must be filed within 9 months of the death of the deceased spouse. Normally, Form 706 is due nine months from the date of death with a six month automatic extension available. This provision is currently scheduled to Treas. Form 706 must be filed Effective June 9, 2017, Rev. It consists mostly of brokerage account that includes various securities. The assets of the living trust are being spilt into trust A and trust B. You receive a six-month automatic extension of time to file with regard to Forms 706, 706-A, 706-D, 706-NA, and 706-QDT, as long as you file the extension request by the due date and include payment of the estimated amount of the estate tax (or generation-skipping transfer tax). Section A of Part 6 of the form. (and Generation-Skipping Transfer) Tax Return 2010 (c) (5) (A), a portability election is effective only if made on a Form 706 that is filed within the time prescribed by law (including extensions) for filing such return. At SacredHonor.US, we hate it … My mother passed and my father is filing form 706 only for the portability election and is electing to estimate values. The logical answer to this open question would seem to be that an executor is not required to issue Form 8971 to a surviving spouse in a portability-only 706 filing. A timely filing includes the sixmonth extension if Form 4768 is filed. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Section A of Part 6-Portability of Deceased Spousal Unused Exclusion. Secs. Some are essential to make our site work; others help us improve the user experience. The IRS on Sept. 29 issued Notice 2011-82 to alert executors of 2011 estates of the need to file a Form 706 to make the election to transfer a decedent’s unused $5 million estate and gift tax exclusion to the surviving spouse. 3 of Form 706. f) Computation required for portability election (1) Transitional Rule (2011 Deaths) –A “complete and properly-prepared estate tax return” will be deemed to include the computation of the DSUE amount. Capital Gains Another reason to file Form 706 even if your estate doesn't owe taxes is to establish the tax basis for gifts made to beneficiaries. In October, the IRS posted Form 706, Treas. otherwise be required to file Form 706 (generally If an executor wishes to elect portability of the Deceased Spousal Unused Exclusion (DSUE) amount, the only required action is to complete and file a timely (i.e.,nine months after the date of death or the last day of the extension period) Form 706.
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