In 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act. One provision of the law provided a “portability” election which allows a surviving spouse to add the unused portion of the deceased spouse’s federal estate tax exemption (currently $5,490,000) to the surviving spouse’s exemption—potentially sheltering millions of additional dollars of assets from federal estate tax upon the surviving spouse’s death. Theoretically, this means that married couples would not incur a federal estate tax unless their total estates were over $10,980,000.
For example, in 2017, the federal estate tax exemption is $5.49 million for assets left to anyone other than a spouse. All assets left to a spouse pass freely from federal estate tax. If a husband predeceases his wife and leaves $1 million to heirs other than his wife, the unused portion of his federal estate tax exemption is $4.49 million. The executor of the husband’s estate can then file a federal estate tax return and make the portability election for this unused portion of estate tax exemption. This permits the surviving wife to combine her exemption of $5.49 million with the husband’s remaining $4.49 million, allowing a total of $9.98 million to pass free from federal estate tax upon the wife’s death.
The catch, however, was that the deadline for making the portability election was nine months from the deceased spouse’s date of death. This short timeframe caused many potential filers to miss the deadline and resulted in the IRS receiving a large number of extension requests which can require a fee of up to $9,800. The IRS recently issued Revenue Procedure 2017-34 which extends the time allowed to make the portability election for those who died after December 31, 2010 from nine months after death to the later of either January 2, 2018 or two years after the deceased spouse’s death.
Taking advantage of this extension has the potential to shelter millions of additional dollars of assets from federal estate tax upon the death of a surviving spouse who dies with assets of more than $5.49 million. Such a surviving spouse could have received a large inheritance from the deceased spouse or a windfall since the decease spouse’s death, possibly from an inheritance, lottery winnings, or the signing of an oil and gas lease. Additionally, with the increase in the stock market since 2010, assets could have grown significantly. Therefore, this portability election could be important to save millions of dollars of estate taxes.
If you have had a spouse pass away since 2010 and your net worth is in the $2,000,000 to $3,000,000 range or greater, you may want to speak with your estate planning attorney or CPA to determine whether it may be a good idea to make a portability election.
I would like to thank Attorney Mark Wagner of our office for his work on this article.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.