Alabama Estates and the Impact of the Estate Tax Portability Provision

The Christian Science Monitor reports that there will be a substantial increase in the number of estate tax returns filed with the IRS this year. This is despite the fact that there will be fewer than 3,300 estates that will be required to pay federal taxes. The current state of the law encourages estates to file returns even if they do not owe any taxes to the federal government. The result: increased costs and an increased number of returns for the IRS to process.

Why do these estates to continue to file returns? The answer lies in the details of the portability provision of the 2010 Tax Relief Unemployment Insurance Reauthorization and Job Creation Act. This provision allows surviving spouses to claim on their own estate tax returns any exemption not used by their deceased spouses.

The 2011 estate tax exemption is $5 million. If a husband dies this year and leaves an estate with a taxable value of $3 million, his estate owes no tax and his wife’s estate may claim the unused $2 million exemption when she dies. Thus, if the $5 million exemption remains in effect, her estate could avoid tax on its first $7 million.” However, and this is an important trick, in order to claim the portability exemption, the estate is required to file a tax return during the appropriate time. If the estate fails to do so, it is not possible for the estate to ever claim the unused exemption.

Couples who have estates of more than $10 million routinely file for such exemptions, but even couples with smaller estates can benefit from it. It is possible that Congress will lower the current $5 million exemption for large estates. It is also possible that Congress will disallow the exemption in future legislation, which most estates will likely challenge in the courts. It is uncertain what kind of impact this will have on the future of estate planning and attorneys must stay up-to-date regarding these important changes.

The Huntsville estate planning attorneys at Martinson & Beason will provide you with the highest level representation and work tirelessly to ensure that your estate is well protected. Please do not hesitate to contact Martinson & Beason if you find yourself need the assistance of an Alabama estate planning lawyer.

Source: “Why the IRS will be flooded with estate tax returns this year.” by Roberton Williams, published at