A Few Things on the IRS and Estate Tax Rules

by   |  10.13.11  |  estate planning

The following is a little bit “inside baseball”, but it’s useful to know if your situation is relevant.  I promise I won’t do posts like this very often.

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The WSJ has an article on the IRS clarification of some estate tax laws affecting people who die in 2011 or 2012.  The issue here is the new idea of estate exemption portability, whereby the surviving spouse can co-opt any unused portion of the deceased spouse’s estate tax exemption.

If a couple’s combined estate is worth $8M and the deceased spouse’s portion of that is $2M, that leaves $3M of the estate tax exemption unused.  That $3M can be added to the surviving spouse’s $5M exemption, giving the surviving spouse enough exemption coverage to eliminate any estate tax.

But according to the IRS, the surviving spouse will only get credit for the unused exemption amount if the executor of the deceased spouse files an estate tax return.  However, many advisors and executors don’t go through the process of filing an estate tax return if the size of the estate is under the exemption amount, or so says the article.

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In other news, the IRS has made some concessions towards the estates of those who passed away in 2010, particularly late December 2010.  Because of the extremely late Congressional action to act on the 2010 repeal of the estate tax, the IRS has conceded that estates may need more than the typical 9 months to file an estate tax.  Thus, just by asking nicely, estates that meet certain requirements can have up to a penalty-free 15 months to file the estate’s tax return.  Interest will, of course, be charged after month 9.