Portability of the estate tax exemption presents major issues in planning and estate administration. As usual, many resources on this topic can be found on the Internet, including analysis of the portability provisions of ATRA 2012, explanations and forms for filing the election and planning suggestions.
Some of the articles available on the Internet that provide an introduction to this topic include:
Testimony of Shirley L. Kovar  on estate tax applicable exclusion portability, before the Senate Committee on Finance on 4/30/2008 (PDF format).
DeVlieger & Carmona, The Rules of Portability  (ABA, RPTE Section) gives further background of the portability concept.
“Bypass the Bypass Trust ,” (Trusts & Estates, Feb. 1, 2011) discusses the implications of the 2010 Tax Act's “portable” exclusion
Louden & Ebert, “How Portability Can [Literally] Save the Family Farm,” 16 Nebraska Lawyer 15 (May/June 2014), available at http://nebar.com/associations/8143/files/TNL-0514d.pdf , reviews the basics of the portability election.
Steve Akers’ Heckerling Musings 2013 addresses The Estate Planner’s “Playbook” for 2013 and Going Forward Under the Post-ATRA “New Normal” of Permanent Large Exemptions and Portability  (ACTEC 2013).
Technical portability issues
“Problems with Portability, Part 2 ” (Steve Leimberg's Estate Planning Newsletter - Archive Message #1777, Feb. 16, 2011), including planning, second marriages and reductions for past gifts.
Sheppard F. Miers, Jr. and Melissa S. Taylor, “I give and bequeath all my DSUEA to my spouse”: The New “Portability” Feature in Federal Estate Tax Law and Issues It Raises , (GableLaw 2010) includes examples in the application of portability.
See, also Robert S. Keebler, “Fewer Estates May Be Taxable, but More Need Estate Tax Returns ” (Ultimate Estate Planner–Teleconference, fee-based).
Filing the election and IRS rules and regulations
Filing the election for portability presents its own issues, and the Internal Revenue Service’s rulings and regulations for making the election and filing returns are ever-evolving.
A Form 706 must be filed to make the election, under Notice 2011-82 , as discussed in “Estates Must File Form 706 to Make Portability Election ” (Journal of Accountancy, Sept. 29, 2011). See, IRS Notice 2011-82, Guidance on Electing Portability of Deceased Spousal Unused Exclusion Amount  (NYSSCPA, Oct. 21, 2012) for commentary on this Notice.
Initial procedures for making the DSUEA election were prescribed in T.D. 9593, Portability of a Deceased Spousal Unused Exclusion Amount , including amendments to regulations.
T.D. 9593  (July 5, 2012) issued temporary regulations and provides detailed guidance on the election. Treas. Reg. Section 20.2010-2T(a) , requires an executor electing portability to make that election on a timely-filed estate tax return.
Sharon L. Klein, “IRS Issues Long-awaited Portability Guidance ” (WealthManagement.com, June 25, 2012) provides a summary of the temporary regulations and proposed rules on the deceased spouse unused exclusion. The temporary regulations are also discussed in “New, Temporary Regulations Explain Estate Tax Portability” Issue  (Rack & Olansen).
Donita M. Joseph, “Beware the Portability Election ” (CalCPA March/April 2012) discusses the need for estates under the federal Applicable Exclusion to file a DSUEA return.
Revenue Procedure 2014-18  was the procedure issued addressing deaths prior to Dec. 31, 2013. See Clint Pearson & Mark D. Puckett, “Rev. Proc. 2014-18: Automatic Extension for Qualifying Estates to Elect Portability ,” (The Tax Adviser May 1, 2014); Trisha J. English, “Rev. Proc. 2014-18 Streamlines Certain Requests for Extension of Time to File an Estate Tax Return for the Sole Purpose of Electing Portability ” (BNA, March 6, 2014) and Marissa Dungy, “IRS Provides Relief for Small Estates to Make Late Portability Election ” (WealthManagement.com March 3, 2014).
Estate planning in the light of the DSUEA
The Deceased Spousal Unused Exclusion Amount was extended by ATRA for the years after 2012. Some of the online articles providing an introduction to estate planning with (or without) portability include:
Justin P. Doyle, “New 'portability' doesn't resolve all estate planning issues ” (Rochester Business Journal, April 15, 2011) provides a basic discussion on portability.
“Estate planning tactics for those who don't need portability ” (jerseycityestateplanningattorneys.com, April 3, 2011).
“Portability and Why Tax Planning Still Matters ,” (fortenberrylaw.com) is part of a series of articles on the 2010 Act and how it affects estate planning in 2011 and beyond. Other pertinent articles include “Introduction to the New Estate Tax Law, Estate Planning Under the New Estate Tax Law” and “Why Estate Tax Planning Still Matters.”
Lester B. Law & Andrew T. Huber, “Estate Planning with Portability in Mind, Part 2 ,” 86 Fla Bar J No. 4, April 2012) discusses portability planning and analyzes the income tax effects of portability.
The effect of portability on planning, particularly with with bypass trusts, are discussed in Franklin, Law & George Karibjanian, “Portability–The Game Changer ” (RPTE Section ABA); and Franklin & Law, “Why Estate Planners Should Consider a New Framework in Light of Portability’s Permanence ” (ALI CLE 3/14/2013).
Phillip J. Kavesh, “Portability vs “B” Funding Comparison Chart ” (Ultimate Estate Planner, free) graphically illustrates some of the issues involved in portability planning.
Interaction with state estate taxes
Another area that may require attention is that of a domicile in a state with a state estate tax exemption less than the federal exemption. The portability election would apply the unused federal exemption in the first estate to the second estate but would not affect the optimum use of the state exemption in the first estate. See, Lisa M Rico, “Estate Planning with Portability in Decoupled States ,” 27 Probate & Property (May/June 2013), suggesting that taking full advantage of portability in the estate of the first spouse will result in losing one spousal estate tax exemption. The author further suggests, however, that in states having no separate qualified terminal interest property (QTIP) election, the deceased spouse’s estate could make a larger federal QTIP election to eliminate federal and state taxes in that estate and then make a portability election for the difference between the federal applicable exclusion and the state threshold amount.
A typical state reaction to portability is New York Tech. Mem. TSB-M-11(9)M, to the effect that there’s no portability for the NY estate tax exemption. www.tax.ny.gov/pdf/memos/estate_&_gift/m11_9m.pdf .
See also, Charles Steiner & Martin Shenkman, “Estate Planning in Decoupled States Post-ATRA ,” August 2013, Trusts & Estates 13 (kkwc.com library) and Shenkman, Greenberg, Henkel & Steiner, “Estate Planning in a Decoupled State Post-ATRA for Married Clients Under the Federal Exclusion Amount ” (CCHgroup.com), discussing the historical perspective, state bypass and QTIP trusts, ancillary issues that affect bypass and portability planning, planning based on outright marital bequests and planning based on bequests to marital trusts.
Lewis Saret, “Portability Plans Vs Credit Shelter Plans: State Estate Taxes-Portability Approach ” (Forbes May 6, 2014), which suggests that using portability may achieve the same results in states having a state-only QTIP and links to additional discussions of credit shelter planning after ATRA.
Life insurance planning
The potential for an irrevocable insurance trust to reduce the portability amount is discussed in Alan Gassman & Kenneth J. Crotty, “Why a Married Couple with $4,500,000 in Assets and $2,000,000 of Life Insurance Needs an Irrevocable Life Insurance Trust – Do Not Make an $800,000 Mistake” (Gassman Law Associates Oct. 3, 2013) at http://gassmanlawassociates.com/800000-mistake-addicted-beneficiaries-lawyerdolphin/ .
The advent of portability has raised a number of issues that must be addressed in the planning and administration of estates. The primary directions from the IRS and numerous helpful analyses and articles discussing these issues may be found on the Internet.
Trusts & Estates magazine is pleased to present the monthly Technology Review by Donald H. Kelley—a respected connoisseur of the software and Internet resources wealth management advisors use to further their practices.
Kelley is a lawyer living in Highlands Ranch, Colo., and is of counsel to the law firm of Kelley, Scritsmier & Byrne, P.C. of North Platte, Neb. He is the co-author of the Intuitive Estate Planner Software, (Thomson – West 2004). He has served on the governing boards of the American Bar Association Real Property Probate and Trust Section and the American College of Tax Counsel. He is a past regent, and past chair of the Committee on Technology in the Practice, of the American College of Trust and Estate Counsel.
Trusts & Estates has asked Kelley to provide his unvarnished opinions on the tech resources available in the practice today. His columns are edited for readability only. Send feedback and suggestions for articles directly to him at [email protected] .