Filing 706 for Portability Only: What You Need to Know

Estate planning involves strategic decisions to minimize tax liabilities and preserve wealth for future generations. Filing IRS Form 706 for portability allows a surviving spouse to utilize the unused estate tax exclusion of their deceased partner. This strategy ensures that more assets can transfer without incurring significant taxes.

Reasons to File for Portability Only

Portability is a valuable option for estates where the combined value of the deceased’s estate and the surviving spouse’s assets may exceed the federal estate tax exemption. As of 2024, the exemption is $12.92 million per individual, and electing portability can double this amount, shielding up to $25.84 million from taxes. This is especially useful for those expecting substantial asset appreciation or inheritances.

It also benefits families who may not have engaged in thorough estate planning before the first spouse’s death. By claiming the unused portion of the deceased spouse’s exemption, the surviving spouse can mitigate potential future tax burdens.

Portability can also hedge against potential legislative changes. With ongoing discussions about reducing the estate tax exemption, securing the unused exclusion now safeguards against less favorable future tax conditions. This measure helps families preserve wealth for future generations.

Eligibility Criteria

To claim the deceased spouse’s unused exclusion (DSUE) amount, the surviving spouse must be a U.S. citizen. Non-citizen spouses can use a Qualified Domestic Trust (QDOT) to defer estate taxes until distributions are made or upon their death.

Even if the deceased spouse’s estate falls below the filing threshold, Form 706 must still be filed to elect portability. The form must be submitted within nine months of the decedent’s death, with a six-month extension available upon request. Missing the deadline forfeits the portability election.

Calculating the Deceased Spousal Unused Exclusion

Calculating the DSUE begins with valuing the deceased spouse’s taxable estate, including real estate, investments, and personal property, as of the date of death. Deductions such as debts, funeral expenses, and charitable contributions reduce the taxable estate.

The unused exclusion is the difference between the federal estate tax exemption and the deceased spouse’s taxable estate. For 2024, if the exemption is $12.92 million and the taxable estate is $5 million, the DSUE is $7.92 million. This amount transfers to the surviving spouse if all requirements are met.

Past gift tax returns filed by the deceased spouse may affect the DSUE calculation. Gifts exceeding the annual gift tax exclusion reduce the estate tax exemption. Accurate records of prior gifts are essential to determine the correct DSUE amount.

Timing and Submission Requirements

Form 706 must be filed within nine months of the deceased’s death. Missing this deadline results in the irrevocable loss of the DSUE amount. A six-month extension can be requested using Form 4768, but it does not extend the time to pay any estate tax due.

Required Documents and Schedules

Submitting Form 706 requires detailed documentation and specific schedules. The decedent’s death certificate must be attached. Schedule A, detailing real estate values as of the date of death, is mandatory even if the estate falls below the taxable threshold. Accurate appraisals are crucial.

Schedules D and F, covering life insurance policies and miscellaneous property, must also be completed. All assets, including those passing directly to the surviving spouse under the marital deduction, must be disclosed. Supporting documents such as appraisals, account statements, and prior gift tax returns substantiate reported values.

Confirming the Final Election

After filing Form 706, verifying that the portability election was processed is essential. The IRS does not automatically confirm the DSUE amount. Taxpayers can request a transcript of the decedent’s tax account using Form 4506-T to confirm the DSUE amount transferred to the surviving spouse. Discrepancies should be promptly addressed with the IRS.

Surviving spouses should retain all records related to the portability election, including the filed Form 706, supporting schedules, and the IRS transcript. These documents may be required if the surviving spouse’s estate approaches the taxable threshold or if legislative changes impact the estate tax exemption. Proper documentation ensures the DSUE amount can be defended in the event of an audit or dispute.