The “Portable Exclusion” is the unused portion of a deceased spouse’s estate tax exemption. It can later be used to increase the total estate tax exemption for the other spouse’s estate. When the executor of the first deceased spouse files required Tax Form 706, an election must be made. This election makes it possible for the unused amount of the deceased spouse’s tax exemption to be applied to the estate of the second spouse when the second spouse dies. This amount is added to the second spouse’s estate tax exemption. However, the election must be made by the executor of the first deceased spouse’s estate on Form 706. This election also establishes the dollar amount (unused) tax exemption of the first deceased spouse that may someday be applied to the estate of the second spouse.
Currently, an Illinois tax return is required for an estate that is valued at $2,000,000 or above. We suggest that Federal Form 706 be completed and sent to the Internal Revenue Service even for those estates valued under the Federal filing requirement of $5,000,000 and above, whenever the decedent is survived by a spouse. This creates a permanent record that can later be referenced in order to meet the code 2010(c)(5) requirements in order to later apply the Portable Exclusion.
