Portability Election

The portability election is the election an executor makes so that a surviving spouse can use the deceased spouse's unused federal estate tax exclusion. Treasury Regulation 20.2010-2(a) names it: "This election is referred to in this section and in section 20.2010-3 as the portability election." It is made on Form 706, the federal estate tax return, and it is the return itself rather than any separate form or statement that constitutes the election.

The amount that transfers, the cap on it, and the rule that it comes from the most recently deceased spouse are the subject of the estate tax and lifetime exclusion entries. This entry is about the procedure: how the election is made, how it is refused, who may make it, how long it can be changed, what a return filed only to elect has to contain, and how long the IRS may look at it afterward.

The election is the filing, which is the part most people get wrong. Treasury Regulation 20.2010-2(a)(2) provides that upon the timely filing of a complete and properly prepared estate tax return, an executor "will have elected portability" unless the executor affirmatively chooses not to. There is no separate election form and no election box to check in order to elect. Paragraph (a)(3)(i) supplies the mirror image: to not elect, the executor must state so affirmatively on the return or in an attachment, in the manner the Form 706 instructions set out. Paragraph (a)(3)(ii) adds the other way to fail to elect, which is simply not filing.

An electing estate is treated as required to file, and that has a consequence. Under paragraph (a)(1), an estate that elects portability "will be considered ... to be required to file a return under section 6018(a)." The due date is therefore nine months after the date of death, or the end of an extension actually obtained. The same paragraph then closes a door and opens another: the discretionary extension relief in Treasury Regulation 301.9100-3 "will not be granted" to an estate that was independently required to file under section 6018(a), but it "may be available" to an estate that was not. In other words, the estates that can be rescued from a missed election are precisely the small ones that never had to file in the first place, and Revenue Procedure 2022-32 gives those estates a simplified route on or before the fifth anniversary of the death.

It is changeable right up to the deadline, and then it is not. Paragraph (a)(4) lets an executor who timely files "make or may supersede a portability election previously made," provided the superseding return is filed on or before the due date including extensions actually granted. Once that date passes, the election as it then stands "becomes irrevocable."

Who may make it is broader than people assume. Paragraph (a)(6)(i) covers an appointed executor. Paragraph (a)(6)(ii) covers the situation where nobody has been appointed at all, which is common when a small estate passes entirely by beneficiary designation and joint title: any person "in actual or constructive possession of any property of the decedent," a non-appointed executor, may file the return and elect. An appointed executor can later supersede that person's election within the deadline; one non-appointed executor generally cannot override another's.

Two eligibility limits sit in paragraph (a)(5). The election is available only for deaths on or after January 1, 2011, and it is not available at all for a decedent who was a nonresident and not a United States citizen at death. For that decedent, filing a return does not constitute an election.

A return filed only to elect does not need full valuations of everything. This is the provision that makes the exercise affordable, and it is easy to miss. Paragraph (a)(7)(ii)(A) says that for an estate not otherwise required to file, property whose value is deductible under the marital or charitable deduction need not be reported at a value; the executor reports the description, ownership and beneficiary, together with what is needed to establish the deduction. Paragraph (a)(7)(ii)(B) attaches the condition: the executor must exercise "due diligence to estimate the fair market value of the gross estate," and reports a good-faith estimate. The relief switches off in four listed situations, including where the value affects what passes to someone else, where it is needed for another Code provision, where only part of an interest is marital or charitable deduction property, and where a partial disclaimer or partial QTIP election has been made.

The return stays open longer than a normal return. Section 2010(c)(5)(B) provides that notwithstanding the period of limitation in section 6501, after the ordinary assessment period has run, "the Secretary may examine a return of the deceased spouse to make determinations with respect to" the transferred amount. So the IRS can revisit the deceased spouse's return years later to verify the figure the survivor is using, even though it can no longer assess additional tax on that return itself. That is a reason to keep the first spouse's return and its supporting records, indefinitely.

One limit worth stating because it is the commonest false assumption: portability is an estate tax mechanism only. The generation-skipping transfer tax exemption is not portable, and a first spouse's unused GST exemption is lost rather than transferred.

The procedure, then a timeline showing where each rule bites.

1. Someone has to be willing to file. An appointed executor, or if there is none, any person in possession of the decedent's property.

2. File a complete Form 706 within nine months of death, or within an extension actually obtained. For an estate not otherwise required to file, the marital and charitable deduction property can be described rather than formally valued, on a good-faith estimate of the gross estate.

3. Do nothing further to elect. The timely complete return is the election. To refuse it instead, state that affirmatively on the return.

4. Change your mind, if at all, before the deadline. A superseding return filed on or before the due date including extensions replaces the earlier election.

5. After the deadline it is irrevocable, and the surviving spouse can apply the transferred amount to lifetime gifts and to their own estate.

6. Keep the return. The IRS may examine it without regard to the ordinary limitations period, for the purpose of verifying the transferred amount.

A hypothetical timeline. Ana dies on 10 March. Her gross estate is about $4,000,000, almost all of it a house and a brokerage account passing outright to her husband Peter, so no estate tax is due and no return is required. Because she made no taxable gifts and the marital deduction reduces her taxable estate to nothing, her entire basic exclusion amount is unused.

The nine-month deadline is 10 December. Her son, acting as executor, files a complete Form 706 on 3 November, describing the house and the brokerage account and their beneficiary rather than obtaining formal appraisals, and supplying a good-faith estimate of the gross estate. He says nothing about portability on the return, and that filing is the election.

On 1 December the family decides against it for reasons of their own, and he files a superseding return stating affirmatively that the estate is not electing. Because the due date has not passed, that supersedes the earlier election. After 10 December whichever version stands is irrevocable.

Change one fact and the outcome changes completely. If nothing had been filed by 10 December, the estate would still have a route, because it was not otherwise required to file: the simplified late election, available on or before the fifth anniversary of Ana's death. Had her estate been large enough to require a return in its own right, that route would have been closed and the exclusion would simply be lost.

Pros

• It preserves the first spouse's unused exclusion for the survivor without any trust drafting, which is why it displaced the old two-trust default for most couples.
• The election is made by filing, so there is no separate form to obtain and no additional signature to chase.
• It can be made by someone who was never formally appointed, which matters for the small estates that pass entirely outside probate.
• It can be superseded up to the filing deadline, so a decision made early can be revisited with better information.
• An estate filing only to elect can describe marital and charitable deduction property instead of appraising it, which keeps the cost of the exercise proportionate.

Cons

• It requires a full federal estate tax return from an estate that owes nothing and would otherwise file nothing, which is exactly the estate least likely to think of it.
• Discretionary late-election relief is unavailable to an estate that was independently required to file, so the larger the estate, the harder a missed election is to fix.
• It is irrevocable once the filing deadline passes.
• It does nothing for the generation-skipping transfer tax exemption, which is not portable.
• The deceased spouse's return can be examined without regard to the ordinary limitations period, so the records supporting it have to be kept indefinitely.
• It is unavailable for a decedent who was a nonresident and not a US citizen.