Can a Surviving Spouse Use Two Estate Tax Exclusions?

The federal estate tax exclusion is the amount that can be transferred before the estate tax would become applicable. However, if you are married to an American citizen, you do not have to use any of your exclusion to transfer assets tax-free to your spouse. There is an unlimited marital deduction that allows for unlimited transfers between citizen spouses.

For the remainder of the 2015 calendar year, the exact amount of the estate tax exclusion is $5.43 million, and the maximum rate of the tax is 40 percent.  In 2015, the exclusion will increase to $5.45 million while the maximum tax rate stays at 40 percent.

The Matter of Portability

Prior to the 2011 calendar year, the estate tax exclusion was not portable between spouses. In this context, the term “portability” refers to the ability of a surviving spouse to use the estate tax exclusion that was afforded to his or her deceased spouse.

Many people felt as though this arrangement was unfair. After all, two individuals contributed to the accumulation of the wealth in question. Why should just one exclusion be available to a surviving spouse?

At the end of 2010, a legislative measure was passed that is now called The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This piece of legislation impacted the estate tax parameters in a number of ways.

The $5 million inflation adjusted exclusion that we have in place right now was implemented as a result of this act, and it set the maximum rate at 35 percent. Plus, it made the estate tax exclusion portable between spouses.

These provisions were only in place for two years. This act expired at the end of 2012, but a different tax relief act was passed at the end of that year. It made the $5 million inflation-adjusted exclusion permanent, and although it is called a tax relief act, it raised the top rate of the estate tax to 40 percent.

The American Taxpayer Relief Act of 2012 also made portability of the estate tax exclusion permanent. However, when someone passes away, the portability is not automatically granted by the Internal Revenue Service. Within nine months of the passing of the decedent, IRS Form 706 must be filed to opt for portability. We should point out the fact that a six-month extension can be granted if more time is needed.

Learn More About the Federal Estate Tax

People who have been able to accumulate a significant store of wealth should certainly have a full understanding of the potential impact of the federal estate tax. If you would like to obtain more information about this tax and the strategies that can be implemented to mitigate your exposure, download our special report.

This in-depth report can be easily accessed through this website, and it is being offered free of charge. To get your copy, click this link: Free Estate Tax Report.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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