Portability allows a surviving spouse to apply a deceased spouse’s unused estate tax exemption amount toward his or her own transfers during life or at death. While it may not seem as though the other spouse will use the full exemption, unforeseen circumstances may result in a hefty estate tax, such as winning the lottery or unexpected inheritance. To secure these benefits, however, the deceased spouse’s executor must have made a portability election on a timely filed estate tax return. The return is due nine months after death, with a six-month extension option.
Unfortunately, estates that aren’t otherwise required to file a return (because they don’t meet the filing threshold) often miss the deadline. Several years ago, the IRS offered a simplified procedure for obtaining an extension, but it was available only through the end of 2014. After that, the only option was to request a private letter ruling from the IRS, a time-consuming, expensive process with no guarantee of success.
In 2017, however, the IRS made it easier (and cheaper) for estates to obtain an extension of time to file a portability election. For all deaths after 2010, IRS Revenue Procedure 2017-34 grants an automatic extension, provided: The deceased was a U.S. citizen or resident, The executor wasn’t otherwise required to file an estate tax return and didn’t file one by the deadline, The executor files a complete and properly prepared estate tax return on Form 706 within two years of the 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).” If your spouse predeceases you and you’d benefit from portability, be sure that your spouse’s estate files a portability election by the applicable deadline. Contact us with any questions you have regarding portability.