IRS Makes Adjustments To Estate Portability Elections

In early July, the IRS issued a new procedure that can extend the portability of estate tax for up to five years after the death of a spouse. 

What is a Portability Election? Portability Election is a method to prevent any applicable exclusion not used by a decedent with a surviving spouse from being lost. If an estate makes the portability election, any unused exclusion at this first death is made available to be used by the surviving spouse and, or their estate for subsequent transfers. No transfer taxes will be due on any amounts transferred to the decedent’s surviving spouse.

Why did the IRS Make the Change? Due to receiving a number of requests for those who could not meet the 2-year deadline, the IRS decided to extend the deadline. This decision was not only to extend this relief to five years but to make certain changes to reduce the number of PLR requests the agency receives.

What are the Impacts on the Surviving Spouse? If the 706 is filed promptly, the surviving spouse will receive the unused exclusion (DSUE)  amount from the deceased spouse for application on the surviving spouse’s transfers that were made on or after the date of death. If the surviving spouse had made taxable gifts before the estate took advantage of the relief and had to pay a gift tax transfer, then the surviving spouse may file a claim for a refund of the gift tax that the DSUE would have offset. The same can be done with paid estate tax returns of the surviving spouse. However, suppose the surviving spouse’s applicable exclusion amount, caused by the addition of the decedent’s DSUE as of the decedent’s date of death, results in an overpayment of gift or estate tax by the surviving spouse or their estate. In that case, no claim for credit or refund may be made. Something to keep in mind is that if a surviving spouse files a claim for a refund before filing Form 706 under this Revenue Procedure, that filing will be treated as a protective claim for a refund. 

Do I Qualify? This relief is available to the executor of a qualified estate or, if no executor has been appointed, a “non-appointed executor” as provided for in the regulations at Treasury Regulation. To be able to take advantage of this relief, the following conditions must be met:

  • The decedent was (1) survived by a spouse, (2) died after December 31, 2010, and (3) was a citizen or resident of the United States on the date of death
  • The executor was not required to file a federal estate tax return based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes
  • The executor did not file an estate tax return within the time required by section 20.2010-2(a)(1) for filing an estate tax return
  • The executor files Form 706 under the procedures outlined in this Revenue Procedure to make a late portability election.

Though your options are virtually limitless, proper estate planning -deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees, and court costs can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.