Estate Tax Portability - How To Opt Out Of The Portability Election And Who Is Responsible For Making The Election

Lewis Saret for Forbes writes: Opting out of the Portability Election.  There are two ways to opt out of the portability election.

First, the temporary regulations require the executor of an estate of a decedent with a surviving spouse who is filing an estate tax return to make an affirmative statement on the return signifying the decision to have the portability election not apply.

Second, if no estate tax return is required for a decedent’s estate under the Internal Revenue Code (“Code”) Sec. 6018(a), then the fact that a return was not timely filed will serve as an affirmative statement to the Service signifying the decision not to make a portability election.

Caution. It may be possible for an executor to elect out of the portability election when filing an estate tax return even if the return is not complete or properly prepared.  The words “complete and properly prepared” are omitted from the section of the regulations dealing with opting out of the portability election by filing an estate tax return. Thus, it can be argued that an incomplete or improperly prepared estate tax return could still validly affirm to have the portability election not apply.

The Executor Responsible for Making the Portability Election.

When making a valid portability election, Code Sec. 2010(c)(5) permits only the executor of the decedent’s estate to file an estate tax return and make the portability election.

Issue. One issue that the Service considered was whether to permit a surviving spouse to file an estate tax return on behalf of a decedent independently of an appointed executor. In this scenario, the appointed executor does not file a return, and the surviving spouse would have to notify the executor of his/her intention to file.

Rule. The preamble to the temporary portability regulations notes that the Code permits only the executor of the decedent’s estate to file the estate tax return and make the portability election. Consequently, the surviving spouse may not make the portability election unless he/she is the executor of the decedent’s estate.

Code Sec. 2203 defines “executor” to mean “the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent.”

This provision creates two types of executors with the authority to file an estate tax return to elect portability or opt to have the portability election not apply.  The temporary regulations define the first type, an “appointed executor,” as the executor or administrator that is appointed, qualified, and acting within the United States for the decedent’s estate. If there is no appointed executor, then the second type of executor, a “nonappointed executor” is responsible for making or opting out of the portability election. A “nonappointed executor” is any person in actual or constructive possession of any property of the decedent.

Caution. The temporary regulations provide that a portability election made by a nonappointed executor cannot be superseded by a contrary election made by another nonappointed executor of the same decedent’s estate.

Caution. To make a positive portability election, a nonappointed executor must properly prepare and timely file an estate tax return. It may be difficult for a nonappointed executor to obtain the requisite information to properly prepare the estate tax return due to the lack of court appointment.

This post discusses how to opt out of the portability election as well as who has the responsibility to make or opt out of the election. Future posts will discuss how to compute the applicable exclusion amount that can be “ported” from the deceased spouse to the surviving spouse.

Written with assistance from Allaya Lloyd.