Portability option may be worthwhile even for estates that are not currently taxable

In June the IRS issued final regulations regarding the federal estate and gift tax portability provision. The tax break for married couples was introduced by Congress in 2010 and made permanent in 2013. Portability allows a surviving spouse to transfer to himself/herself any unused portion of the deceased spouse's federal estate tax exemption, effectively permitting the survivor to use  two exemptions and pass more tax-free money to heirs. Until portability came along, most married couples accomplished this by setting up a joint AB (credit shelter) trust.

The option to elect portability is not open-ended, though: The personal representative (executor) or trustee of the decedent's estate must file a federal estate tax return (Form 706) and take the portability election, within nine months of the spouse's death. Moreover, this must be done even if the estate is not currently taxable and therefore not legally required to file a 706. The IRS rules alleviate the filing burden for non-taxable estates only to the extent that the value of assets can be approximate.

If you are among the 99% of Americans whose estate is not taxable  - thanks to a generous $5.43 million federal estate tax exemption at this point in time - don't automatically conclude it's not worth the time or effort to file an estate tax return. Depending on the size of your deceased spouse's estate, your age and other circumstances, choosing to preserve your spouse's exemption could be a prudent move, just in case you end up with a taxable estate of your own.

How could you end up with a taxable estate? Well, there's always the lottery. More realistically, your estate could increase to a taxable level if you are relatively young and your assets have many years to grow. You might end up receiving an inheritance of your own. And Congress is always a wild card: Who knows what the next election cycle, or the cycle after that, will bring? The estate tax has been a moving target for years. 

Better safe than sorry. Surviving spouses should talk with their estate planning attorney about whether to file a 706. If there's a reasonable chance the spousal exemption might be needed in the future, filing the 706 and electing portability will preserve the tax break.