Portability is one of the best estate planning strategies available. But how much does it cost to file 706 for portability?
In many cases, it can be rather cheap. But it can also be very expensive.
In this post, I will discuss how portability works, Form 706 and, most importantly, the cost to file. Let’s dive in.
Table of contents
What is Portability?
Portability is a surprisingly and relatively new concept. It was introduced back in 2010 and became permanent in 2012.
So what actually is Portability? In basic terms, Portability will allow a married couple to consider their two individual estate tax exemptions as if they were one big combined exemption.
When one of the spouses dies and the estate value is less than the gross individual exemption, the remainder (or unused portion) can be transferred to the surviving spouse. The surviving spouse is then able to use their own exemption along with the remaining exemption without needing more comprehensive estate planning.
Thankfully, portability is available for U.S. citizens. But it isn’t entirely automatic. The deceased spouse’s executor has a lot of work to do. They must timely file Form 706 to elect Portability relating to the deceased spouse’s unused exclusion. This is also called the “DSUE.”
A Form 706 with DSUE (that is timely filed) is deemed a proper portability election. There is not a check box that indicates the election is made. There is only a check box one to show the negative.
If an executor files Form 706 and does not want to elect Portability, they must “check the box indicated” and not have to complete Sections B or C of Part 6.
A surviving spouse must complete section D if they received an unused exclusion from one or more predeceased spouses.
Cost to File 706 for Portability?
In theory, filing Form 706 for portability is rather straightforward. You would think it would be really cheap.
But things are not often as easy as you might think. There are many issues that come up along the way. For this reason, we have seen portability cost between $1,000 and $5,000.
Why so much? Look at some of the issues that can come into play:
- Coordinating issues with the estate attorney.
- Issues surrounding the citizenship and residency of the decedent and the surviving spouse.
- Making sure the surviving spouse understands the disadvantages of portability.
- Communicating with beneficiaries.
- Determining if portability is available at the state level and filing state forms.
The first step in the process is determining if electing portability is the right decision. In most situations, it is a slam dunk. But careful analysis should be determined if it is right for the surviving spouse.
Below are some of the disadvantages of electing portability:
- It requires filing Form 706 for the deceased spouse’s nontaxable estate
- The GST exemption is not portable
- Planning issues can arise for couples with children from prior marriage
- Future asset growth still held inside the estate of the surviving spouse
- Family issues relating to the election
- Assets in a Bypass trust could have greater asset protection
- Unexpected estate tax at the state level could occur if survivor relocates
Considering the above issues, the CPA and attorney must review these issues with the surviving spouse to determine the best course of action.
The good news is that a surviving spouse does not have to file Form 706 when the gross value of the estate (which includes prior taxable gifts) is less than the basic exclusion amount. But the IRS allows executors filing solely to elect portability of the DSUEA to not have to disclose and report values of certain assets that are eligible for the marital deduction or the basic charitable deduction.
However, the values are required to be estimated and included in the calculation total of the entire gross estate. The property assets can be rounded to the nearest $250,000, but do not have to be disclosed on the recapitulation included on the Form 706 in Part 5.
Portability Fee Schedule
By now you understand that filing form 706 for portability is not as simple as just completing and filing a basic form. It must be part of a thorough process.
The following is an example of a portability fee schedule.
|Cost or Fee
|Reviewing estate plan
|Discussion with estate attorney
|Preparation of Form 706
|Determining if surviving spouse should not claim portability
|Advising the surviving spouse on how portability works
Of course the above fee schedule and cost analysis is only an example. Each client’s situation is unique and requires different assumptions and due diligence. Make sure you gain a good understand of the cost and fee structure upfront to avoid issues down the road.
If an estate intends to elect Portability, all that is required is a timely filed (including extensions) Form 706. The deceased spouse’s unused exclusion is required to be computed on the return.
Estate executors who are otherwise not required to file Form 706 filing solely to elect Portability of the spouse’s unused exclusion to the surviving spouse are not required to report the value of the specific property that is eligible for the spousal marital deduction or even the charitable deduction.
However, the executor must estimate the value of those assets and include them in the gross estate value. For estate assets, the executor can estimate the value in good faith and with proper due diligence.
While Portability could change or be repealed, the current law allows for some flexibility considering the uncertainty of federal estate and gift tax. As a result, a surviving spouse needs to seek legal counsel upon the death of their spouse to review the challenges of estate law and whether or not filing for Portability may be beneficial.
Remember that filing Form 706 itself effectively makes the election. Form 706 provides a procedure for estates required to file because the gross estate’s value exceeds the corresponding exclusion amount or for another reason to opt-out of the election.
As you can see, the cost to file 706 for portability can vary widely. It really depends on your situation, the value of your estate and the parties involved.