New Estate Tax Portability Relief

The federal estate tax provides a lifetime exemption of $5,490,000 (for 2017) per person. That means that the first $5,490,000 of assets owned at death are exempt from federal estate tax. All additional assets are subject to a 40% tax (for 2017).   

Prior to 2010, if an individual died having used less than the applicable exemption amount, the remaining exemption was lost. In 2010, Congress enacted legislation allowing portability of the lifetime exemption between spouses. Specifically, for deaths after 2010, the estate of a deceased spouse can transfer any unused exemption to a surviving spouse.

Despite this new taxpayer-friendly provision, the transfer of the unused exemption amount between spouses is not automatic. Instead, the executor of the deceased spouse’s estate must elect portability on a timely filed (including extensions) estate tax return. This requirement holds true even if the value of the gross estate and adjusted taxable gifts would not ordinarily necessitate the filing of an estate tax return.  

In the ensuing years, numerous taxpayers failed to file a portability election in a timely manner and sought a mechanism for relief. Excluding a period in 2014, the only method available for relief was to request a private letter ruling, which involves significant legal, accounting and filing fees.

Thankfully, on June 9, 2017, the Internal Revenue Service issued Revenue Procedure 2017-34. The revenue procedure, which became effective immediately, provided a simplified method to obtain an extension of time to elect portability of a deceased spouse’s unused exemption amount. The estates of individuals who died between 2011 and January 2, 2016 (and who were not required to file an estate tax return and who left a surviving spouse) can file a “late” return and elect portability until January 2, 2018. In addition to providing relief to these taxpayers, the revenue procedure also made the portability election more flexible going forward. Specifically, the executors of individuals who die after January 2, 2016, can elect portability up to two years after the date of death. 

For more information, contact Schneider Downs or visit the Our Thoughts On blog.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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