January 2, 2018 Deadline to Cure “Past” Missed Estate Tax Portability Elections

November 28, 2017
January 2, 2018 Deadline to Cure “Past” Missed Estate Tax Portability Elections

“In this world, nothing can be said to be certain except Death and Taxes” – Benjamin Franklin

The modern Federal Estate Tax has been in existence since 1916 and is a source of much political debate.  Congress amended the tax law in 2013 to establish a permanent exemption for each person of $5 Million of assets from being subject to the estate tax. This exemption is indexed for inflation, and in 2017 an individual can shield up to $5.49 Million of assets from the tax. In 2018, this exemption goes up to $5.6 Million.  The estate tax rate is currently 40% for that portion of the value of the estate exceeding the available exemption.

There is an unlimited exemption from the estate tax for assets passing from one spouse to another (either outright or in trust). Starting in 2011, an important benefit known as portability came into effect which allows the estate of the first spouse to die to elect to transfer that  spouse’s exemption amount (known as the Deceased Spousal Unused Exclusion or DSUE) to the deceased spouse’s surviving spouse.  Making the portability election of the DSUE can increase the amount of exemption available to the surviving spouse which gives a married couple the potential to protect up to $10.98 Million from the tax in 2017 ($11.2 Million in 2018).

Portability is an important tax benefit which executors and administrators should be aware of.  In order to take advantage of portability, an estate representative of the first spouse to die must file a Federal Estate Tax Return with the IRS for the deceased spouse. This Return must be filed to elect portability even if the value of the estate does not exceed the minimum reporting requirements.  The return must be timely filed within nine months of death (or fifteen months if an application for extension is filed) in order to claim the portability election. The general rule has been that if an estate representative fails to timely file the Federal Estate Tax Return, the portability election is lost.

Since the enactment of portability, there have been many missed elections. Many estate representatives and surviving spouses received no advice or poor advice about portability.  Fortunately, the IRS has provided a simplified method for estates to extend the period for electing portability to cure missed portability election deadlines.  The IRS allows an estate which was not otherwise required to file an estate tax return to still claim portability by filing a late return on or before the later of January 2, 2018 or the second anniversary of a decedent’s death.  Therefore the time period to cure many past missed portability elections is quickly coming to an end.

If you would like more information on the portability election, please contact our Estates Department.

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