New Tax Bill Passed!

The American Taxpayer Relief Act was passed in the first days of 2013 to avoid raising taxes on all taxpayers. The Act: (1) extends the 2012 income tax rates for persons earning less than $400,000, or $450,000 for joint filers; (2) for these same filers, the capital gains and dividends rate will increase from 15% to 20%, but stay at 15% for other taxpayers; (3) estate, gift and GST exemptions stay at $5 million (indexed for inflation) but the top rate is increased from 35% to 40%; (4) makes "permanent" the portability of a deceased spouse’s unused exemption to the surviving spouse; and (5) makes "permanent" the alternative minimum tax relief and indexes it for inflation.

Guidance on 2011 Decedents and "Portability"

The IRS just released new guidance for personal representatives regarding electing portability of the deceased spouse’s unused estate tax exclusion amount and to potentially double the estate tax exemption that will be available at the surviving spouse’s later death. Notice 2011-82 confirms that the "portability" election must be made on a timely filed Federal Estate Tax Return (Form 706) and provides that the timely filing of a Form 706 "prepared in accordance with the instructions" will constitute the making of the portability election; therefore, by simply filing the Form 706, the estate will be considered to have elected portability "without the need to make an affirmative statement, check a box, or otherwise affirmatively elect." The Notice also provides that an estate may avoid making the election by following the instructions for the Form 706, which describe the necessary steps. For more information, go to http://www.irs.gov/pub/irs-drop/n-11-82.pdf.

2011 Decedents and "Portability"

If a 2011 decedent is the first spouse to die, then in order for the surviving spouse to potentially double the estate tax exemption that will be available at his or her later death, under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) “portability” of the deceased spouse’s unused estate tax exemption must be elected on a timely filed U.S. Estate Tax Return (Form 706).  A draft of the 2011 Form 706 was released by the IRS on August 26, 2011, but does not seem to include a place to elect portability.  You may want to file a Form 4768 by the due date of the Form 706 (usually 9 months after date of death) to request an automatic 6-month extension and perhaps by then the manner of electing portability will be clear. See our January 2011 newsletter for a more complete discussion of this Act.