Document Type

Article

Publication Date

9-2012

Source Publication Abbreviation

Lexis Fed. Tax J. Q., Sept. 2012 at ch. 4.

Abstract

With the issuance of temporary regulations, Treasury pulls back the cloak of uncertainty and reveals a portability election that proves to be relatively dependable and a useful planning tool. The temporary portability regulations,1 issued June 15, 2012, remove the “now you see it, now you don’t”2 quality of the deceased spousal unused exclusion (“DSUE”) amount as enacted by Congress. With a sleight of hand, Treasury rewrites the plain wording of the statute to eliminate uncertainty. The temporary regulations provide a clear path for avoiding loss of the DSUE amount on remarriage. The regulations allow donors to make gifts without fear of losing applicable exclusion amount, eliminate the possibility of the dreaded claw-back, and suggest the ability to use a QTIP election regardless of the value of decedent’s assets. This article discusses the impact of the temporary portability regulations, specifically noting the corrections and additions made to the statute as enacted by Congress. It also analyzes the planning considerations following from these changes.

The goal of portability is to simplify estate planning for married couples. As enacted by Congress, however, the statute falls short in its intent to provide an effective means for couples to avoid the necessity of making pre-death transfers and of using a credit shelter trust in order to ensure full use of the applicable exclusion amount by both spouses.3 The plain wording of the statute creates an ambiguity as to calculation of the DSUE amount, which in turn leads to a number of questions as to whether the surviving spouse may effectively use the DSUE amount. If the surviving spouse makes a taxable gift does the DSUE amount shelter the gift or does the applicable exclusion amount of the surviving spouse shelter the gift? Can the surviving spouse make gifts triggering payment of estate tax without reducing the surviving spouse’s applicable exclusion amount? If the surviving spouse remarries after making gifts using the DSUE amount of the spouse from the prior marriage, can there be a claw back of transfer tax on the earlier gift? At what point does the surviving spouse become eligible to use the DSUE amount of a predeceased spouse? The temporary portability regulations answer each of these questions so as to allow the surviving spouse the ability to favorably plan for full use of the DSUE amount elected by the predeceased spouse’s estate, even in the event of remarriage.

The only uncertainty remaining and irresolvable by the temporary regulations is the possibility that the portability election will sunset at the end of 2012. Congress must act to extend the portability election for it to be available after December 31, 2012. Understandably the temporary regulations do not discuss the ability to use a DSUE amount after the sunset occurs. The temporary portability regulations apply to estates of decedents dying and gifts made after 2010 and in a year when the applicable exclusion amount is determined by aggregating the basic exclusion amount and any DSUE amount. They expire by their terms on June 15, 2015. The effective date provisions of the temporary portability regulations, thus, recognize the portability statute is slated to sunset as of 2013.

Comments

Materials reproduced with the permission of Matthew Bender & Company, Inc., a member of the LexisNexis Group of companies. No part of this document may be copied, photocopied, reproduced, translated, or reduced to any electronic medium or machine readable form, in whole or in part, without prior written consent of Matthew Bender & Company, Inc.

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