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Estate Planning

Funerals and Tax Forms: Estate Planning Issues for Surviving Spouses

will and testamentGoing through the grief process is not the only difficult work that has to be done after the death of a spouse. Indeed, following this significant loss, handling the estate becomes a new high priority task for which you may not be emotionally or physically prepared.

After the death of a loved one, there are lots of administrative duties that must be accomplished. Perhaps the most important of these tasks include all of the steps associated with the distribution and transfer of  your loved one’s estate. In addition, there are all sorts of smaller items you have to take care of: you must obtain many copies of the death certificate, you may have to close all sorts of accounts or change the names on accounts, you must notify Social Security and you must notify insurance companies.

One of the items that many people do not realize they will have to take care of is filing a final income tax return for your loved one or filing a complete IRS Form 706 if they desire to make a portability election.

In some situations, a surviving spouse will want to make a “portability” election which is an optional choice to “borrow” a deceased spouse’s unused estate tax exemption so that the second to pass spouse can shelter more of their assets from estate tax following their passing. Most of the time, when portability is considered, the first passing spouse will not have sufficient assets to require the filing of a full form 706. The requirement to file a complete IRS Form 706 in these situations is burdensome, in order to just make an election.

Recently, the American Institute of CPAs (AICPA) has requested that the Internal Revenue Service streamline this process by creating a form (Form 706-EZ). This would be a more simplified version of the current Form 706, which is a 31-page form. The proposed 706-EZ would be an alternative form for a taxpayer who is electing to transfer the unused portion of the spouse’s estate tax exemption.   

The 706-EZ may be appropriate for people whose estates are below the $5 million threshold. The AICPA is concerned that many who fall into this group are not even aware that the IRS requires notification of “portability”, that is intent to transfer the unused spousal estate tax exemption to the surviving spouse.

The AIPCA’s proposal has other components including allowing the surviving spouse to file these forms (as it stands now, the executor of the estate is charged with this responsibility) as well as other extension deadline proposals.

Dawda Mann attorney Jeffrey D. Moss believes the proposed 706-EZ is a good idea, stating, “This would be a welcome change that would simplify things for people who otherwise would not need to file the  full IRS Form 706.  We have had several situations where a portability election was appropriate but the form 706 was a lot of paperwork that likely was unnecessary for the election.”