Estate Planning: Questions Surround Portability

Mohammed Bidar

One of the most favorable and flexible recent changes to the federal estate tax system has been the advent of the concept of portability.  By allowing a surviving spouse to succeed to the unused applicable exclusion amount of the decedent spouse (Deceased Spousal Unused Exclusion (DSUE)), the government has opened the door to much more flexible estate planning without a fear of wasting a deceased spouse’s estate tax exclusion.  However, this flexibility comes at the cost of potential risks and dangers which are not yet well understood.

The authors in this article very ably describe some of the risks and uncertainties, and summarize a recent decision by the Oklahoma Supreme Court as it relates to a real-life circumstance (Howard M. Zaritsky and Lester B. Law, Surviving Spouse Wins the DSUE Lottery But Must Pay for the Ticket, Probate Practice Reporter, Volume 29, Number 2, February 2017).

  • Is the unused exclusion a property right or interest?
  • Does a surviving spouse, who is not otherwise a beneficiary of a decedent’s estate, have standing to complain about a failure to file a return to elect portability?
  • Does an executor have a fiduciary obligation to the surviving spouse to preserve the exclusion and file the return to elect portability?
  • What about a fiduciary duty to the estate beneficiaries to preserve the assets and not incur fees to file a return to elect portability, the effect of which will be to diminish the assets to be shared by the beneficiaries?
  • Does one duty trump the other?

The lesson to be learned is that great care must be taken by fiduciaries as they navigate the complexities of deciding whether or not to file federal estate tax returns solely to elect portability.

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