Form 706 for portability election

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bob1234
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Form 706 for portability election

Post by bob1234 » Sun May 04, 2014 5:51 pm

Has anyone found an example of a properly filled out Form 706 for the portability of the estate tax exemption (DSUE), in the case where an estate tax isn't due, but is being filed solely to elect portability?

In our particular case, all the property is being transferred to the surviving spouse. I want to make sure that I am correct in assuming that all asset values can be estimated (no home appraisals required, etc.) and asset values should not be listed individually. Instead, only a total estimated value is specified, rounded up to 250k.

I assume we will be getting a Estate Tax Closing Letter 4-6 months after the return is filed to confirm the return is accepted and contains no errors. If there are errors or missing information, will we have an opportunity to correct them without disqualifying us from the portability election?

manwithnoname
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Re: Form 706 for portability election

Post by manwithnoname » Mon May 05, 2014 6:34 pm

bob1234 wrote:Has anyone found an example of a properly filled out Form 706 for the portability of the estate tax exemption (DSUE), in the case where an estate tax isn't due, but is being filed solely to elect portability?

In our particular case, all the property is being transferred to the surviving spouse. I want to make sure that I am correct in assuming that all asset values can be estimated (no home appraisals required, etc.) and asset values should not be listed individually. Instead, only a total estimated value is specified, rounded up to 250k.

I assume we will be getting a Estate Tax Closing Letter 4-6 months after the return is filed to confirm the return is accepted and contains no errors. If there are errors or missing information, will we have an opportunity to correct them without disqualifying us from the portability election?
see except from form 706 P 2 column 1

Portability of Deceased Spousal Unused Exclusion
1.
Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE) was added to Form 706. The only action required to elect portability of the DSUE amount, if any, is to file a timely and complete Form 706. In this Part, taxpayers can opt out of electing to transfer any DSUE amount to a surviving spouse, calculate the amount of DSUE to be transferred in the event of an election, and/or account for any DSUE amount received from predeceased spouse(s).

The DSUE election is filled out as if the estate tax return would be required and then complete part 6.

A tax professional should be able to answer all of your questions. Is a tax professional preparing the 706?

bsteiner
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Re: Form 706 for portability election

Post by bsteiner » Mon May 05, 2014 10:30 pm

Temp. Treas. Reg. § 20.2010-2T(a)(7) allows the executor to estimate the values: http://cfr.regstoday.com/26cfr20.aspx#26_CFR_20p2010d2.

However, the executor may want to determine the values as best as possible in order to determine the basis of the assets, or for some other reason.

EDIT: the above was a temporary regulation, for estates of persons dying before June 12, 2015. Here is the final regulation for estates of persons dying on or after June 12, 2015: https://www.law.cornell.edu/cfr/text/26/20.2010-2.
Last edited by bsteiner on Sat Jun 06, 2020 8:19 am, edited 1 time in total.

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Tue May 06, 2014 2:36 am

Thanks for the link. I was planning on filling out the form on behalf of my mom, who is the surviving spouse, and then having it reviewed by someone. Our tax accountant wasn't familiar with the form. Would an estate lawyer be the best person to review this or a CPA?

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Re: Form 706 for portability election

Post by bsteiner » Tue May 06, 2014 10:17 am

Estate tax returns are generally prepared by lawyers, since there are many issues that can arise in connection with the estate tax return. It's not surprising that an accountant wouldn't be familiar with it. However, if the only reason to file the estate tax return is to elect portability, I'm less concerned about who prepares it. Since your accountant wasn't familiar with it, you might have the lawyer handling the estate review it.

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Mon May 12, 2014 1:45 am

I have a question about the joint property. I have a Vanguard taxable account that is titled as JTWROS between myself, my dad (who we are filing the estate tax form for), and my mom (the surviving spouse). However, I have made all of the contributions to the account and paid all the taxes (it is my account, but the JTWROS was done to make my parents beneficiaries.)

Since the Percentage Includable would be 0%, do I need to list this in Schedule E, Part 2? Or would I be causing more confusion/scrutiny by listing it?

If I should be listing it, what kind of proof should I include? This account has been open for 15 years with hundreds of electronic bank transfers.

I plan to ask the lawyer this when we have it reviewed, but I thought I would see if there were other opinions first.

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Sun May 18, 2014 8:35 pm

I'm guessing my question was very specific. More generally, how does one prove that all contributions to the joint account came from me. A copy of every electronic bank transfer to the account? And, are printouts of online statements OK? Or, is a signed affidavit from me sufficient?

Unfortunately, we are having trouble finding someone that is experienced in this area (estate lawyer says contact a tax accountant and no tax accountants are familiar with this).

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Re: Form 706 for portability election

Post by bsteiner » Sun May 18, 2014 9:36 pm

bob1234 wrote:I have a question about the joint property. I have a Vanguard taxable account that is titled as JTWROS between myself, my dad (who we are filing the estate tax form for), and my mom (the surviving spouse). However, I have made all of the contributions to the account and paid all the taxes (it is my account, but the JTWROS was done to make my parents beneficiaries.)

Since the Percentage Includable would be 0%, do I need to list this in Schedule E, Part 2? Or would I be causing more confusion/scrutiny by listing it?

If I should be listing it, what kind of proof should I include? This account has been open for 15 years with hundreds of electronic bank transfers.

I plan to ask the lawyer this when we have it reviewed, but I thought I would see if there were other opinions first.
bob1234 wrote:I'm guessing my question was very specific. More generally, how does one prove that all contributions to the joint account came from me. A copy of every electronic bank transfer to the account? And, are printouts of online statements OK? Or, is a signed affidavit from me sufficient?

Unfortunately, we are having trouble finding someone that is experienced in this area (estate lawyer says contact a tax accountant and no tax accountants are familiar with this).
This should be a routine matter for a trusts and estates lawyer, but perhaps this is the first time he's had to deal with that issue. More often the decedent is the one who furnished the consideration.

I disagree with the advice to ask a nonlawyer. The lawyer should consult with someone more senior in his/her firm's trusts and estates department, or do the necessary research to find out what to do, or bring in another trusts and estates lawyer as co-counsel.

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Mon May 19, 2014 12:02 am

Thanks bsteiner for your responses. We are really filing the portability election more as an insurance policy, since if the law stays as it is now, we will most probably not need to use it. So, we are questioning how much investment we want to put into filing this form.

If the return were to get audited, would that involve even more lawyer fees? Or, would it mostly likely just involve providing the necessary bank/investment statements and potentially having them adjust the DSUE amount if necessary. The gross estate is about 2.5 million, so there would be no chance of having to owe any taxes.

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Re: Form 706 for portability election

Post by Newlife » Thu Jun 04, 2020 2:34 pm

Did you prepare for form 706 yourself? Could you share your experience with me? I plan to file form 706 for portability. I am the surviving spouse and am thinking of preparing for form 706 myself. Currently, there are no phone assistance at IRS. I am thinking if I do it wrong, will it be more costly? Our net worth is very modest so we don't need to pay for the estate tax.

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Fri Jun 05, 2020 8:31 pm

Newlife, sorry for your loss. Yes, I ended up preparing the form 706 myself and having a tax accountant review it. The accountant didn't find any issues with what I had prepared. Once submitted, the IRS sent back a confirmation letter confirming it had been received. That was pretty much it, no issues since then.

Due to the strong stock market, the estate value has more than doubled since I filed. While it is still far less than the current exclusion amount of $11.4 million, if the 2017 tax cuts don't get extended, the exclusion amount is set to get cut in half at the end of 2025. So, even if the current estate value is less, it is worth considering growth of assets and changes to tax law. In our case, it ended being worthwhile to file the form. At the time, portability was a relatively new concept, so people were less familiar with it. Hopefully, by now, there is more information out there.

Newlife
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Re: Form 706 for portability election

Post by Newlife » Fri Jun 05, 2020 11:18 pm

Bob, thank you so much for your response. I am glad that it went well for you. Although I find some information about the form, it is still not much out there. Were you able to find additional guidance, in addition to the 706 instructions from IRS? Could you share it with me? How do you find a tax accountant who would review the form for you? I talked to some CPAs. They have not prepared many 706 forms but want to charge me ranging from $3,000 to $5,000. One would not even give me an estimate. My estate attorney does not advice me to do portability based on my modest assets. But I share your belief that it is better to do it, because I don't have a crystal ball to the future.

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Re: Form 706 for portability election

Post by whyamihere » Sat Jun 06, 2020 7:47 am

Newlife wrote:
Fri Jun 05, 2020 11:18 pm
Bob, thank you so much for your response. I am glad that it went well for you. Although I find some information about the form, it is still not much out there. Were you able to find additional guidance, in addition to the 706 instructions from IRS? Could you share it with me? How do you find a tax accountant who would review the form for you? I talked to some CPAs. They have not prepared many 706 forms but want to charge me ranging from $3,000 to $5,000. One would not even give me an estimate. My estate attorney does not advice me to do portability based on my modest assets. But I share your belief that it is better to do it, because I don't have a crystal ball to the future.
Of the accounting firms and lawyers I know that are trained and experienced with DSUE, they're not cheap. I've seen engagements grow to $10,000 to get the form corrected when errors are made early in the process. Is it out of the question to view that fee as a second opinion insurance? $5,000 is only 10 basis points if the estate is $5mil.
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WoodSpinner
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Re: Form 706 for portability election

Post by WoodSpinner » Sat Jun 06, 2020 7:55 am

All,

Could someone post a link to a completed (anonymized) one?

It would be a good reference.

Thanks

WoodSpinner

talzara
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Re: Form 706 for portability election

Post by talzara » Sat Jun 06, 2020 12:20 pm

Newlife wrote:
Fri Jun 05, 2020 11:18 pm
How do you find a tax accountant who would review the form for you? I talked to some CPAs. They have not prepared many 706 forms but want to charge me ranging from $3,000 to $5,000. One would not even give me an estimate. My estate attorney does not advice me to do portability based on my modest assets. But I share your belief that it is better to do it, because I don't have a crystal ball to the future.
This is a very small market. Most estate tax returns are prepared by lawyers, not accountants. Everything is going to be expensive, because most clients are Very High Net Worth Individuals.

In 2018, only 13,526 estate tax returns were filed. Only 960 were smaller than $5 million, and only 477 were nontaxable estates under $5 million. https://www.irs.gov/statistics/soi-tax- ... ar-table-1
WoodSpinner wrote:
Sat Jun 06, 2020 7:55 am
Could someone post a link to a completed (anonymized) one?

It would be a good reference.
Here is a sample form 706 using the 2016 DSUEA. Schedule E and Schedule I have been left blank, but most Bogleheads will have to fill them out. https://media.law.miami.edu/heckerling/ ... DIX_II.pdf

There's a better sample return in the CCH U.S. Master Estate and Gift Tax Guide. The book costs $165, but it's probably worth buying if you intend to complete form 706 yourself.

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Re: Form 706 for portability election

Post by bsteiner » Sat Jun 06, 2020 5:54 pm

talzara wrote:
Sat Jun 06, 2020 12:20 pm
Newlife wrote:
Fri Jun 05, 2020 11:18 pm
How do you find a tax accountant who would review the form for you? I talked to some CPAs. They have not prepared many 706 forms but want to charge me ranging from $3,000 to $5,000. One would not even give me an estimate. My estate attorney does not advice me to do portability based on my modest assets. But I share your belief that it is better to do it, because I don't have a crystal ball to the future.
This is a very small market. Most estate tax returns are prepared by lawyers, not accountants. Everything is going to be expensive, because most clients are Very High Net Worth Individuals.

In 2018, only 13,526 estate tax returns were filed. Only 960 were smaller than $5 million, and only 477 were nontaxable estates under $5 million. https://www.irs.gov/statistics/soi-tax- ... ar-table-1
WoodSpinner wrote:
Sat Jun 06, 2020 7:55 am
Could someone post a link to a completed (anonymized) one?

It would be a good reference.
Here is a sample form 706 using the 2016 DSUEA. Schedule E and Schedule I have been left blank, but most Bogleheads will have to fill them out. https://media.law.miami.edu/heckerling/ ... DIX_II.pdf

There's a better sample return in the CCH U.S. Master Estate and Gift Tax Guide. The book costs $165, but it's probably worth buying if you intend to complete form 706 yourself.
I was aware that very few estate tax returns are filed for portability, but I continue to be surprised at how few there are. About 2.8 million people die each year in the United States. Probably about 1.2 million of them were married. I know that wealth is much more unevenly distributed than income, so for most families the estate tax isn't a concern. However, it would seem that more than 14,000 estates (about 1% of the married decedents) should be filing portability returns.

We do them in most of our estates under the filing threshold where there's a surviving spouse. By definition decedents for whom we do portability returns weren't high net worth people. Filing a portability return is a small price to pay for the protection. As to the cost, you have to do much of the work anyway. You have to value the assets to determine the basis. In states where the state exclusion amount is lower, you may have to do a state estate tax return.

The sample form of estate tax return you posted was from Vince Lackner. I know Vince well. He and I were classmates in the graduate tax program at NYU Law School. He's one of the leading software vendors for estate tax, gift tax and fiduciary income tax returns. We use his software for gift tax returns. See lacknergroup.com.

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Mon Jun 08, 2020 3:57 am

Newlife wrote:
Fri Jun 05, 2020 11:18 pm
Although I find some information about the form, it is still not much out there. Were you able to find additional guidance, in addition to the 706 instructions from IRS? Could you share it with me?
In addition to the IRS instructions and the links provided by others in this thread, I used the following (note, it may be out of date by now):
https://view.officeapps.live.com/op/vie ... ckner2.doc
http://fresnoappraisal.info/uploads/3/4 ... d_look.pdf
https://www.philadelphiabar.org/WebObje ... axwell.pdf
Newlife wrote:
Fri Jun 05, 2020 11:18 pm
How do you find a tax accountant who would review the form for you? I talked to some CPAs. They have not prepared many 706 forms but want to charge me ranging from $3,000 to $5,000. One would not even give me an estimate. My estate attorney does not advice me to do portability based on my modest assets. But I share your belief that it is better to do it, because I don't have a crystal ball to the future.
My mom was able to find someone who could review it, but I remember it being hard to find someone familiar with it. I think she got a referral from a firm that specializes in estate planning. I believe it took around an hour to review and the person charged by the hour, so it was a pretty modest amount. The review was really more for piece of mind, since I had already done the research and the work at that point.

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Re: Form 706 for portability election

Post by Newlife » Sat Jun 13, 2020 5:35 pm

Everyone, thank you so much for the additional information. I am going to work on Form 706 this weekend. I am sure that it will help me a lot.

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Re: Form 706 for portability election

Post by WoodSpinner » Sun Jun 14, 2020 1:14 pm

Wondering if there is anyone familiar with doing a Basic Portability Election for those of us with assets well under $5MM that would be willing to write this up for the Wiki with examples?

This drives me a bit nuts — it should be a basic checkbox! Frankly, it should just be automatic!

I am a DIYer if possible and would like to leave simple instructions for my wife to follow if I go first. I might come back and haunt a CPA if this was a $3-5000 estate expense.

WoodSpinner

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Re: Form 706 for portability election

Post by bsteiner » Sun Jun 14, 2020 2:28 pm

WoodSpinner wrote:
Sun Jun 14, 2020 1:14 pm
Wondering if there is anyone familiar with doing a Basic Portability Election for those of us with assets well under $5MM that would be willing to write this up for the Wiki with examples?
...
In response to your previous inquiry in this thread, Talzara posted a link to one by Vince Lackner, whose company Lackner Group is one of the leading vendors of software for estate and gift tax returns and fiduciary income tax returns:
talzara wrote:
Sat Jun 06, 2020 12:20 pm
...
WoodSpinner wrote:
Sat Jun 06, 2020 7:55 am
Could someone post a link to a completed (anonymized) one?
...
Here is a sample form 706 using the 2016 DSUEA. Schedule E and Schedule I have been left blank, but most Bogleheads will have to fill them out. https://media.law.miami.edu/heckerling/ ... DIX_II.pdf
...
WoodSpinner wrote:
Sun Jun 14, 2020 1:14 pm
...
I am a DIYer if possible and would like to leave simple instructions for my wife to follow if I go first. I might come back and haunt a CPA if this was a $3-5000 estate expense.
The simple instruction for your wife would be to remind the lawyer handling your estate to do it, though if the lawyer needs reminding then she should be working with a different lawyer.

I generally don't like to have nonlawyers do estate tax returns since law firms with good trusts and estates practices do them regularly whereas very few nonlawyers do very many of them. But in the case of a portability return it may not make as much difference.

Newlife
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Re: Form 706 for portability election

Post by Newlife » Mon Jun 22, 2020 2:32 am

Thank you so much for your help. The information is very helpful. I am almost done with form 706. However, I have two questions.

1. My late husband and I have a revocable trust. Our house and bank accounts are under the trust. The trust is also the beneficiary of life insurance. Do the assets under the trust qualify for the marital deduction?

2. How extensive do I have to list personal property? One guideline states that room by room inventory is necessary. The estate is less than 3M. I think the IRS will not bother with such a small estate. Please let me know if I am wrong.

I appreciate your insight.

New Life

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Wed Jun 24, 2020 11:03 pm

I don't know the answer to #1.

Regarding #2, we had just put the following line in Schedule F:
Furniture, furnishings, and personal effects

In addition, we specified the cars individually. None of the personal property was very expensive.

Since we were solely electing portability, we didn't report the value of individual assets. Instead, there was just an overall estimate of total assets.

Katietsu
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Re: Form 706 for portability election

Post by Katietsu » Wed Jun 24, 2020 11:12 pm

WoodSpinner wrote:
Sun Jun 14, 2020 1:14 pm
Wondering if there is anyone familiar with doing a Basic Portability Election for those of us with assets well under $5MM that would be willing to write this up for the Wiki with examples?

This drives me a bit nuts — it should be a basic checkbox! Frankly, it should just be automatic!

I am a DIYer if possible and would like to leave simple instructions for my wife to follow if I go first. I might come back and haunt a CPA if this was a $3-5000 estate expense.

WoodSpinner
One point of reference, when parent died, the surviving spouse was charged $350 for this.

Newlife
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Re: Form 706 for portability election

Post by Newlife » Thu Jun 25, 2020 1:24 pm

Bob, thank you very much for the answer. It is very helpful. We only have one car and it is under my name. I was just thinking of how to list it. Thanks for the tip. Sorry for one more question. Did your mom have an appraiser appraise the house? From my understanding from reading the form, I don't think it is necessary. But I would like to make sure. Thank you very much.

Newlife

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bob1234
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Re: Form 706 for portability election

Post by bob1234 » Thu Jun 25, 2020 10:58 pm

No, my mom didn't get an appraisal of the house done. We kept a record of the property tax statement for that year, which had the assessed value by the county instead.

The other reason you may want to determine the property value is to figure out the amount of stepped-up basis. This is important if the amount of capital gains is above the exclusion amount ($250k single, $500k married). I think an appraisal is probably preferred, but it seems that property tax assessment is fine too, assuming it is close to the actual value, according to the following article:
https://www.elderlawanswers.com/how-do- ... isal-16982

senex
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Re: Form 706 for portability election

Post by senex » Fri Jun 26, 2020 2:49 pm

Newlife wrote:
Thu Jun 25, 2020 1:24 pm
Did your mom have an appraiser appraise the house?
Chiming in with another data point aligned with bob1234. My experience with an attorney filing form 706 is that the attorney used the property tax assessment, with no additional appraisal.

For what it's worth, it was a median-priced house in an area with accurate property tax appraisals (the law in the house's locale states that assessed values should reflect true market value). If you're in a locale where assessments are inaccurate, then for a modest home, I got the feeling that printing a few MLS listings or recent comparable sales would be fine. If the home is unique or unusually expensive, or there are complicating factors, a formal appraisal may be more defensible if challenged.

Newlife
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Re: Form 706 for portability election

Post by Newlife » Fri Jun 26, 2020 6:38 pm

Thank you very much for the reply about the appraisal. I had a realtor who did a market value analysis. I will include the letter. You guys are very helpful.

Newlife
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Re: Form 706 for portability election

Post by Newlife » Sat Jul 11, 2020 3:54 pm

Hello Everyone,
Sorry that I have one more question. Where should I include 401k and IRA accounts? Should they be in Schedule B Stocks and Bonds or Schedule I Annuities? If they are money market funds, should I list them in in Schedule B or Schedule C Mortgages, Notes, and Cash? Thank you so much.

Newlife

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Re: Form 706 for portability election

Post by bayview » Sat Jul 11, 2020 9:45 pm

Newlife wrote:
Sat Jul 11, 2020 3:54 pm
Hello Everyone,
Sorry that I have one more question. Where should I include 401k and IRA accounts? Should they be in Schedule B Stocks and Bonds or Schedule I Annuities? If they are money market funds, should I list them in in Schedule B or Schedule C Mortgages, Notes, and Cash? Thank you so much.

Newlife
delete - sorry, did not re-read the thread :oops:
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

GeoMetry
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Re: Form 706 for portability election

Post by GeoMetry » Sun Jul 12, 2020 6:26 pm

I am in this exact same situation. Dad died left everything to Mom, no trusts no previous gift tax filing, no previous marriages, $3.5 million estate. I would also like to know how to fill out this form just for portability. I will be following this thread as I attempt this task.

senex
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Re: Form 706 for portability election

Post by senex » Sun Jul 12, 2020 7:28 pm

GeoMetry wrote:
Sun Jul 12, 2020 6:26 pm
I am in this exact same situation. Dad died left everything to Mom, no trusts no previous gift tax filing, no previous marriages, $3.5 million estate. I would also like to know how to fill out this form just for portability.
In the other thread you said he died last year. There is a 9 month window to file something, so be sure to stay atop that. I think you can request an automatic 3-month extension, if you request it before the 9 months expires.

I'm a do-it-yourselfer, but form 706 intimidated me, so I decided to pay an attorney. It was expensive compared to do-it-yourself, but not compared to potential tax savings if the exemption goes back down to sub-$1m, where it was not that long ago.

I'm a bit disappointed that there isn't a one-page "check-the-box" form for portability, but what can you do.

GeoMetry
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Re: Form 706 for portability election

Post by GeoMetry » Mon Jul 13, 2020 7:38 am

As with everything you ever wanted to know how to do there are YouTube videos that might help.
These are not the only ones, Search form 706.

https://www.youtube.com/watch?v=XSpaJsn7Dm4

https://www.youtube.com/watch?v=jbqGVk5WfAc

Newlife
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Re: Form 706 for portability election

Post by Newlife » Sat Aug 01, 2020 3:38 pm

I would like to thank the great help from you, especially Bob. I mailed out the Form 706 a week ago so fingers crossed. The three links provided by Bob are very useful. I found the answer about 401K, along with IRAs, which should be put under Section I, Annuities. I am happy to help with my new albeit limited knowledge with the form.

Throughout the process, I find that it is hard to find a competent and trustful attorney or CPA. I had a very unpleasant experience with my estate attorney. He agreed to review my pre-prepared form. I met with him for less than 30 minutes. He pointed out one error in the form. However, one area was correct but he stated it was wrong. He told me that he had to look it up for one thing. I thought we are done except for the one thing he needed to look it up. Then he told me that he was going to send the paper to his paralegal so he could compute the numbers. I told him that I could compute the numbers myself. He told me it would not take too much time so I relented. Then, he emailed me that because his paralegal already had the form prepared in his computer. He asked me if I wanted him to file for it. In this case, it will be charged as the firm had prepared the form, rather than the review fee, which will be based on the attorney's hourly fee. The paralegal prepared the form in a traditional way, not a simplified one that is required for portability. I feel cheated. It turns out that the attorney does not know the nuts and bolts of the form. I should have vetted my attorney. I have to say I have spent too many waking hours working on the form. It is hard to juggle between work, caring for my kids, and grief. Although it is doable, it might be wise for a surviving spouse to outsource the work.

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