Portability of Estate Tax Exemption

Susie and Nate have an estate of $5 Million. Everything is in joint name and Nate dies in January, 2012. Since Susie inherited everything, she figured no estate tax return was needed. She went to see Joe Probate, a local probate attorney, and he confirmed, “nuthin to probate”, he said. Susie went merrily on her way. In January, 2013, the estate tax exemption went down to $1 Million. Susie died in June of 2013. Her kids go to Joe Probate again, and he says, go see the accountant in town, that the estate is over $1 Million, so there is a potential estate tax. So, when they go to the Accountant, the accountant asks where was Nate’s Federal Estate Tax Return for 2012. The kids shake their heads, they ask Joe Probate, he says none was required. However, because Susie never filed an estate tax return for Nate, she did not capture his portability rights. She could have claimed, 1/2 of his property on a timely filed Federal Estate Tax return for Joe (15 months for portability return). Because she failed to do so, her estate will not get to use his estate tax exemption. Had she filed that return her kids would have had to pay an estate tax upon her death of $660,000. Instead, they will have to pay an estate tax of $2 Million. So it is very important for anyone dying in 2011 and 2012 to file those Federal Estate Tax returns within 15 months of the date of death.

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