How Does Portability Help a Surviving Spouse?

Portability
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Portability tax exclusion benefits have been extended.

People cannot escape taxes.

Purchase something.

Pay a tax.

Own a vehicle or real estate.

Pay a recurring tax.

Make an income.

Pay a tax.

Die with a specific amount of wealth.

Pay a tax.

According to a recent The CPA Journal article titled “Portability of Deceased Spousal Unused Exclusion Extended,” certain tax benefits exists for those who are married.

Portability can help reduce estate tax liability.
Portability elections are only allowed for married couples.

One tax benefit is called the Unified Exclusion Amount or Unified Transfer Tax Credit.

$12,920,000 is the federal estate and gift tax exclusion threshold for individuals in 2023.

For married couples, each individual has $12,920,000 to exclude prior to estate taxes being levied.

Although this Unified Transfer Tax Credit is helpful, portability elections provide additional benefits to married couples.

What is a portability election?

The election allows the surviving spouse to utilize the remaining unused exemption amount from the deceased spouse to receive a greater tax break when transferring assets after the death of the surviving spouse.

If the first spouse to die did not use any of his or her estate tax exclusion amount, then the surviving spouse would be able to transfer an additional $12,920,000 without triggering an estate tax if the widow or widower were to die in 2023.

To qualify for a portability election, the deceased individual had to be a spouse, had to die after December 31, 2010, and had to be a resident or citizen of the United States at the time of death.

Additionally, the estate of the deceased individual must not have been required to file an estate tax return based on the gross value of the adjusted taxable gifts and the estate.

Although these portability provisions were originally set to expire on January 1, 2013, they received a permanent extension in the American Taxpayer Relief Act of 2012.

Originally, the surviving spouse had only nine months from the date the first spouse died for the executor to elect portability.

This changed on July 8, 2022, with the Revenue Procedure 2022-32.

The timeframe for portability election has been extended to five years from the date of death.

The same rule applies, excluding estates required to file an estate tax return.

Why the change?

The IRS was overwhelmed by requests being filed for the Deceased Spousal Unused Exemption (DSUE).

When looking at the data, most of the requests came from the estates of taxpayers who died within five years of the request for portability.

Note: The benefits of portability are not automatically applied.

How exactly is portability elected?

The executor of the estate must complete and prepare Form 706, the United States Estate and Generation-Skipping Transfer Tax Return.

As previously mentioned, this must be filed within five years of the death of the first spouse.

When completing the form, the executor must state at the top of Form 706 how the return is “Filed Pursuant to Revenue Procedure 2022-32 to Elect Portability under Section 201(c)(5)(a).”

Following these steps fulfills portability requirements.

Although the federal estate tax exemption level is currently high, it will decrease by half on January 1, 2026.

As a result, more individuals will qualify for paying federal estate taxes, and portability will become beneficial to more people.

ReferenceThe CPA Journal (August 2023) “Portability of Deceased Spousal Unused Exclusion Extended”

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