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August 15, 2017

File for Unused Estate Tax Portability by January 2, 2018

The IRS is making it easier to file for portability of a deceased spouse’s unused estate tax. A new Revenue Procedure on Portability applies to estates under the minimum filing threshold for an estate tax return. The procedure provides a simpler, less expensive election to file for portability in case the original deadline was missed.

Estate Tax Exclusions Explained

Estates are able to exclude a certain amount of assets from estate tax at death. In 2017, each estate is able to exclude up to $5.49 Million of assets from estate tax. This is a cumulative lifetime exemption that can be used for gifting throughout a lifetime or through asset transfers at death. The amount is adjusted for inflation each year.

Portability Election Update

Smaller estates that do not use their full exemption can elect portability to transfer the leftover exclusion amount to the spouse after death.

Typically, this election had to be made on a timely basis on the deceased’s estate tax return. Form 706 had to be filed within 15 months of the date of death, otherwise a ruling had to be requested from the IRS, which was time-consuming and expensive.

The IRS is granting some temporary relief for small estates that did not timely file Form 706 to elect portability. These estates can file their Form 706 by January 2, 2018, or two years after the date of death, and still be able to elect portability.

To apply for this extension, you must include the statement on Form 706: “Filed Pursuant to Rev. Proc. 2017-34 to Elect Portability Under Section 2010(c)(5)(A)”. The relief is only for small estates that are not otherwise required to file an estate tax return.

The portability election is especially useful in estates where the surviving spouse held the majority of the assets, or the surviving spouse is several years younger than the deceased. Even if the surviving spouse’s assets are less than the current lifetime exclusion, portability may be helpful if assets grow during the surviving spouse’s lifetime or the estate tax exclusions change.

This extension is time sensitive and must be acted on quickly to take advantage. Contact an Anders tax advisor to discuss if this election could benefit you.

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