31 Pages Posted: 11 Sep 2007
The estate tax exemption is not portable. As a result, when one spouse dies without having used the exemption, it disappears and cannot be used by the surviving spouse. While portability legislation has been proposed, Congress has thus far failed to act. This has made estate planning difficult for a significant number of married couples who have what might be described as intermediate-level wealth.
In a series of four private letter rulings, the Internal Revenue Service has responded sympathetically, creating in effect an administrative solution to the portability problem. The difficulty for taxpayers, however, is that, they are unable to rely on such rulings: In the absence of published guidance, the Service may decide to change its position and then apply its new position to taxpayers who have utilized the previously approved drafting blueprint without having secured their own ruling. This is particularly problematic because the Service's analysis in these rulings may well be incorrect. Indeed, if this analysis were incorporated in published guidance, it could undermine the Service's enforcement of the Code in unrelated contexts.
In this article, we suggest a new approach. Under our approach, taxpayers would be able to navigate the portability problem, and the Service would not weaken unrelated Code provisions. After explaining the portability problem, we explore the Service's private letter rulings. We then critique the Service's analysis and present an alternative solution for the portability problem. Finally, we suggest that the Service implement this solution administratively and show how taxpayers can safely employ our approach in the interim.
Keywords: General power of appointment, revocable trust, estate tax exemption, portability, unified credit, testamentary power of appointment, estate tax; revocable QTIP trust, step transaction doctrine, section 2036, creditors' rights, section 2041, marital deduction, section 2523, terminable interest rule
Suggested Citation: Suggested Citation
Gans, Mitchell, Estate Tax Exemption Portability: What Should the IRS Do? And What Should Planners Do in the Interim?. Real Property, Probate and Trust Law Journal, 2007; Hofstra Univ. Legal Studies Research Paper No. 07-29. Available at SSRN: https://ssrn.com/abstract=1013603