Miss the Portability Election Deadline for a Deceased Spouse’s Estate Tax Exemption? You May be in Luck!

Many with estate planning experience are aware of value of estate tax exemption portability. Since 2011, surviving spouses of deceased individuals who claimed less than the maximum estate tax exemption (currently set at $5.49 million and indexed for inflation) have been eligible to elect to “port” the remaining balance of their spouse’s exemption to themselves, for their own estates or even for gifts during life. However, electing to transfer this exemption has been somewhat difficult, due to the harsh 15-month filing deadline after a spouse’s passing, and many have missed the deadline.

Relief for this issue came this summer in the form of IRS Revenue Procedure 2017-34. Now, any individual whose spouse claimed less than the maximum estate tax exemption and passed away after December 21, 2010, may file a late portability election with the IRS.

The implications of this opportunity are striking, depending on an individual’s eligibility. Take the following example:

A wife, Susie Q., survives her husband, John Q., after his death in 2012. He died with a $2.12 million estate, well under the maximum exemption of $5.12 million at the time. To elect to transfer the remaining $3 million to herself, Susie Q. previously needed to file for portability within 15 months of his death. She missed the deadline, being occupied with other matters. Today, Susie Q. has assets worth $9.49 million. Before the IRS’s decision to reopen portability, Susie Q. would have been paying 40% tax on $4 million, the value above the current $5.49 million exemption level, upon her death. But if Susie Q. files for portability soon, she will additionally exempt that $3 million from her late husband’s estate, bringing her total exemption up to $8.49 million, and her taxable estate down to $1 million. Susie will end up paying $400,000 in estate tax on her $9.49 million estate (25% of what she would have paid), if she files on time.

This relief can be significant, but those eligible must act swiftly to take advantage of it. The filing deadline for late portability elections is January 2, 2018. Surviving spouses and the administrators of their estates should contact an experienced estate professional as soon as possible to meet it.

As an additional note, those who are not yet late under the old rules, but who, under the previous 15-month deadline, would become late on or before January 2, 2018, should know that they (and all other individuals filing for this exemption going forward) have two years from date of death to file for portability.

If you are a surviving spouse and need advice or help in estate planning matters please contact me, Randy Alan Weiss, at 202-296-2121.

Photo Credit: © Bill Wilson 2013 | Flickr