One strategy to preserve portability, if it expires, is to give the unused exemption amount away as a gift before 2013, according to McCaffrey. In the above example where the wife gets $2 million carried over from her husband, she could make a gift of that amount this year or next year, and may still be able to preserve her individual exemption amount.
It's unclear whether surviving spouses can use their inherited exemptions first, so a better way to preserve portability in the above example would be for the wife to give away the full $7 million before she dies, Olivieri said.
To take advantage of a deceased spouse's unused exemption amount, the executor of the estate must fill out an estate-tax form to preserve the exemption for the surviving spouse, even if estate taxes aren't owed, said Svagna of Berdon. Estate-tax returns must be filed within nine months after death, and six- month extensions are generally granted.
Beware of Remarrying
Widow or widowers who remarry should remember that portability only applies to the last deceased spouse, said White & Case's Olivieri.
If the wife with the $2 million unused exemption carried over from her husband were to remarry someone who died this year or next, and who had used all of his exemption amount through gifts during his life and upon death totaling $5 million, she would only have her individual $5 million exemption.
If she died before he did, she would maintain the $2 million unused exemption, said Olivieri.
Taxpayers should keep in mind that states generally don't allow for portability of unused state estate-tax exemptions and states may have lower thresholds than the federal government, said Hirschson of Greenberg Traurig. In New York, the limit is $1 million and in New Jersey, it's $675,000.