When a married couple dies within a short time of each other, executors face nuanced federal estate tax decisions. Two important tools in this space are the portability election under Internal Revenue Code § 2010(c) and reverse QTIP elections for generation-skipping transfer (GST) purposes. These elections affect how much of each spouse’s unified credit (commonly called the estate tax exemption) and GST tax exemption survives to benefit the family.
In this post, we explain these concepts and how they interact for estates with compressed timelines.
Portability
Under federal law, each person has a unified credit or applicable exclusion amount that shelters a portion of their estate from federal estate tax. If the first spouse to die does not use their full exemption, the unused portion, the Deceased Spousal Unused Exclusion (DSUE) amount, may be transferred to the surviving spouse through a portability election.
To elect portability, the executor files Form 706 by the estate tax deadline, usually nine months after death, and may request a six-month extension. A properly prepared, on-time return locks in the election, and it is rarely reversible. The transferred unused exclusion (DSUE) then becomes available to the surviving spouse to offset taxable gifts made during life or property included in their later estate.
Reverse-QTIP Trusts for GST Tax Planning
A Qualified Terminable Interest Property (QTIP) trust allows property to qualify for the federal marital deduction while keeping it in trust for beneficiaries other than the surviving spouse. Normally, assets in a QTIP trust are included in the surviving spouse’s estate and thus get a new step-up in basis at their death.
For GST tax planning, a reverse QTIP election can be made so that the first spouse’s GST tax exemption applies to the trust. This preserves the GST exemption for transfers to grandchildren down the line, even though the GST exemption itself is not portable.
Make the Right Filing Decisions Early
When two spouses pass within a short window, early tax return elections can directly affect how much federal estate and GST exemption survives for the family. Choices tied to § 2010(c) portability and any reverse QTIP treatment carry lasting consequences once filed. If you are handling a Florida estate under tight timelines, we can walk through the options with you. Call 386-252-3000 or use our contact form to start the conversation.
