By: Martin M. Shenkman, CPA, MBA, JD
Planning Note: It will become de rigueur in negotiating prenuptial agreements for second and later spouses to obtain confirmation of the remaining portable estate tax exclusion.This representation should specifically address whether any prior taxable gifts were made, whether gift tax returns were filed (and if so copies should be attached as an exhibit), and whether any audits of those returns occurred.
Might internet marriage want ads soon tout exclusion availability? “Handsome and pleasant male, age 89, available for marriage. No assets, but full estate exclusion portable and available. Corroboration from major law firm available for review.”
Should pre-marital due diligence include a review of all prior gift tax returns to ascertain if the adequate disclosure rules were met and the statute indeed tolled? If the items reported on a gift tax return were reported with sufficient specificity and disclosures, then the period during which the IRS can audit that return will run out (toll). When the audit period has expired, the IRS cannot revisit the returns and audit them. Thus, just as on American Idol, you may be “safe.”
Perhaps for open gift tax return years (i.e., returns for periods that the IRS can still audit the returns), the prenuptial agreement should provide a readjustment of the negotiated financial arrangements if the audit of those returns depletes the remaining exclusion of the spouse being represented.
Matrimonial counsel should also carefully evaluate having an estate planner transfer assets to an irrevocable trust for the client prior to marriage. Since it appears that portability of estate exclusion can be applied to inter-vivos gifts by the surviving spouse as well, this may secure the benefit of that exclusion without the risks discussed above. This may not be a simple task if the surviving spouse has to use her own exclusion (basic exclusion amount) first, or simultaneously.
Subscribe to our email list to receive information on consumer webcasts and blogs, for practical legal information in simple English, delivered to your inbox. For more professional driven information, please visit Shenkman Law to subscribe.