Relief Available for Missed Portability Election
For affluent couples, portability — which permits a surviving spouse to “inherit” a deceased spouse’s unused gift and estate tax exclusion — can mean millions of dollars in estate tax savings. To enjoy this benefit, however, the deceased spouse’s estate must have made a portability election on a timely filed federal
estate tax savings. To enjoy this benefit, however, the deceased spouse’s estate must have made a portability election on a timely filed federal estate tax return. Unfortunately, many estates fail to make the election because they’re not otherwise required to file a return.
Consider this example: Louise died in 2015, with a taxable estate worth $1 million. She did not make any taxable gifts during her life. Because her estate was well within the exclusion amount ($5.43 million in 2015) her executor did not file an estate tax return and, therefore, did not make a portability election. Fast forward to 2017: Louise’s husband, Henry, dies with a taxable estate worth $10 million. The exclusion has grown to $5.49 million, but Henry applied $2.49 million of that amount toward taxable gifts during his lifetime. After subtracting his unused exclusion amount ($3 million), his estate is left with a tax liability of $2.8 million. Had Louise’s estate made the portability election, Henry’s estate could have taken advantage of her unused exclusion amount to reduce its tax liability to $628,000 — saving nearly $2.2 million in taxes.
Ordinarily, the only way to obtain relief for a missed portability election is for the deceased spouse’s estate to request a private letter ruling from the IRS granting an extension of time to make the election. But applying for such a ruling is a time-consuming, expensive process — the user fee alone is $10,000 — and there’s no guarantee the IRS will grant the request. Recently, however, the IRS issued Revenue Procedure 2017-34, granting an automatic extension to qualifying estates. To qualify, the following requirements must be met:
- The decedent died after 2010, was a U.S. citizen or resident, and was survived by a spouse;
- The executor was not otherwise required to file an estate tax return and did not do so before the filing deadline;
- The executor files a complete and properly prepared Form 706 — United States Estate (and Generation-Skipping Transfer) Tax Return — on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death; and
- The following language appears at the top of the return: “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).”
Taxpayers whose spouses died after 2010 and would benefit from portability should determine whether their spouses’ estates made the portability election on a timely filed estate tax return. If not, the automatic extension procedure outlined in Rev. Proc. 2017-34 can help them avoid a sizable estate tax bill and preserve more of their wealth for their children or other beneficiaries.
Williams Williams & Lentz, LLP
601 Jefferson St. Paducah, KY 42001 Ph: 270.443.3643 Fx: 270.444.0652 Em: firstname.lastname@example.org
1104 Paris Rd. Ste 100 Mayfield, KY 42066 Ph: 270.247.2124 Em: email@example.com
M-Thurs: 8 a.m. - 5 p.m.
Fri: 8 a.m. - 1 p.m.
Not Advice. The information provided on this website, including without limitation all newsletters, papers, articles, and other information downloaded or accessed by You, is for general guidance and to offer You general information on particular subjects of interest. It is not intended to constitute legal, accounting, tax, marketing, or other professional advice or services.