One of the most frequent questions that our estate and probate department (http://www.cooperlevenson.com/Practice-Areas/Estate-Planning/) receives is how a surviving spouse manages assets that were jointly owned with the decedent. Generally, if a decedent owned assets outright (as opposed to jointly) at the time of his or her death, probate must be opened. If not, it may be unnecessary to open probate. However, it may be beneficial for a surviving spouse to open probate even if the decedent did not individually own any assets at the time of his or her death.
The Internal Revenue Code allows the estate of a decedent who is survived by a spouse to make a portability election. The portability election generally allows a surviving spouse to use any unused tax exclusion amount and apply it to the surviving spouse’s own transfers during the spouse’s lifetime and at the spouse’s death. However, in order to preserve spousal portability and utilize any unused tax exclusion amount, the executor of the decedent’s estate must prepare an Internal Revenue Service Estate Tax Return (IRS Form 706 – f706.pdf) within nine months of the decedent’s death. Section 6(a) on page 1 of the Estate Tax Return requires the name of an executor to be provided.
It is important to understand the confusing terms that are used in probate. When a person dies “testate,” meaning a person dies with a Will, the Will usually appoints an executor. An executor (male) or executrix (female) is responsible for carrying out the terms of the Will. On the other hand, when a person dies “intestate,” meaning the decedent had no Will at the time of death, an administrator (male) or administratrix (female) is appointed by the probate court to complete the tasks of administering an estate. An administrator/administratrix is also appointed if an individual dies with a Will but the Will does not appoint an executor. Finally, the term “personal representative” is another name for an executor. Some states, such as Florida and Nevada, use the term “personal representative” instead of executor but the terms have the same meaning.
An executor can only be appointed by opening probate. As such, in order to secure the spousal portability, which is $5,450,000 in 2016 and adjusted for inflation (2016 Tax Rate Update), probate must be opened. Even if spouses do not have a combined estate of $5,450,000 at the time of the first spouse’s death, it is important to file an estate tax return in case the surviving spouse accumulates more than $5,450,000 during his or her lifetime and wants to utilize the spousal portability. There is also a possibility (particularly with the elections in November 2016) that Congress passes new laws that change spousal portability laws. Congress may “grandfather in” those who elected portability previous.
Michael Salad is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael Salad is licensed to practice law in New Jersey, Florida and the District of Columbia. Michael may be reached at 609.572.7616 or via e-mail at email@example.com.
Peter Fu is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on sales and use tax, enterprise risk management, and commercial transactions. Peter is licensed to practice law in New Jersey and Florida. Peter can be reached at 609.572.7556 or via e-mail at firstname.lastname@example.org.