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Estate Required to Make Portability Election for Benefit of the Surviving Spouse
Posted in Estate Planning
Estate Required to Make Portability Election for Benefit of the Surviving Spouse

In a decision finalized in late January, the Oklahoma Supreme Court has upheld a ruling that the Personal Representative of an Estate must take the necessary steps to transfer the decedent’s unused Federal gift and estate tax exemption to the surviving spouse.

The case stems from the rights newly created by the gift and estate tax laws beginning in 2010 for one spouse to transfer at death his or her unused gift and estate tax exemption to the surviving spouse. Prior to 2010, each spouse had his or her own gift and estate tax exemption, but any portion of that exemption which remained unused by the spouse at death could not be transferred to the surviving spouse.

In the Oklahoma case, the Personal Representative of the Estate, one of the children of the decedent by a prior marriage, had refused to make the required election for transfer even though the surviving spouse agreed to pay the cost required to prepare the necessary Federal Estate tax return to do so. The Personal Representative argued that the Estate should be entitled to charge the surviving spouse additional amounts for the tax savings that the transfer of the decedent’s unused Federal gift and estate tax exemption would provide him on his later gifts and at his later death.     

The Estate argued that the surviving spouse lacked standing to bring the claim, since he had waived his right to any share of the decedent’s estate under the terms of their Antenuptial Agreement (also known as a “Prenuptial Agreement”). Although Antenuptial Agreements are typically thought of as a tool to protect assets or determine a division of assets in the event of a dissolution of a marriage, these agreements also address some of the same issues in the event of death. The Court rejected the Personal Representative’s argument, stating that effectively the right to portability of the decedent’s unused exemption was a beneficial interest in the Estate for the surviving spouse, independent of the surviving spouse’s rights as an heir, which interest was sufficient to give the surviving spouse standing to bring the claim.

The Estate next argued that the parties’ Antenuptial Agreement constituted a waiver by the surviving spouse of any rights to the estate making a portability election. The Court found that the right to portability only arose under the law in 2010, well after the Antenuptial Agreement had been made by the parties in 2006. Even though the Court found that the parties intended a comprehensive waiver of their marital rights under law as it existed at the time of the Antenuptial Agreement, the Court concluded that the Agreement simply did not address portability because it was not part of the law at that time.

Ultimately, the Court upheld the lower court’s determination that the fiduciary obligations of the Personal Representative to preserve the assets of estate applied, and required him to preserve and transfer the decedent’s unused federal estate tax exemption to the surviving spouse. The Court noted that the trial court had heard expert testimony regarding the matter and considered the evidence before making this decision. Ultimately, the Supreme Court ruled that the trial court’s order was not contrary to the clear weight of the evidence or applicable governing law, and therefore affirmed it.

Thus, for those with an existing Antenuptial, Prenuptial or Postnuptial Agreement, especially those executed before 2010, it would be prudent to review them and modify them to state your agreement with respect to the transfer of unused gift and estate tax exemption between spouses at death. And, it would be prudent to address this issue directly in those agreements drafted in the future. Otherwise, you could face the prospects of paying a purchase price or initiating litigation to obtain your deceased spouse’s unused estate tax exemption, like the surviving spouse in this case.

To learn more about John R. Cummins and his practice, please visit his profile.

To learn more about Janet P. Jakubowicz and her practice, please visit her profile.

To learn more about Jan Keefer and her practice, please visit her profile.

Image credit: Serge Melki via Flickr



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