IRS Finalizes Portability Rules for Estate Tax Exemptions

Just in case you haven’t been focusing all of your attention on changing tax regulations, you should be aware that the IRS has issued the final rules governing portability election for a deceased spouse’s unused estate tax exemption. The previous portability rules were only temporary in nature. In simpler terms, this is an option for a surviving spouse to claim their deceased spouse’s estate tax exemption when no tax planning was in place at the spouse’s death. Thankfully, married couples who have utilized tax planning in their revocable living trust plans shouldn’t have much concern over portability.

To claim the first-to-die spouse’s exemption, the surviving spouse must file a very daunting tax return known as Form 706. It was initially hoped that an abbreviated 706 tax return would be an option for claiming portability. Unfortunately the final regulations still require filing the full 706 Estate Tax Return. A streamlined tax return would have made things easier on people who failed to plan for estate taxes before the death of a spouse. As the final portability regulations now stand, most people will still lean toward using a revocable living trust for tax mitigation, rather than filing the full 706 Estate Tax Return.

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