Portability election rules have been changed.
For the better.
Taxes are a common consideration in estate planning.
The state and federal governments have several means of taxing assets left behind after a person dies.
These can include inheritance taxes at the state level and gift and estate taxes at the state and federal levels.
People can choose from several strategies to minimize their tax liability.
According to a recent The National Law Review article titled “IRS Extends Portability Election,” there are more options for those who are married than those who are single.
The Internal Revenue Services allows for estate and gift tax portability.
This essentially means spouses can combine their estate and gift tax exemptions.
When one spouse outlives the other, this widow or widower may utilize the unused tax exemption from the deceased spouse to reduce the tax liability on the estate of the surviving spouse.
Consider an example scenario.
Spouse A dies in 2022 when the individual estate tax exemption is $12.06 million.
During the lifetime of this spouse, she used $1 million in the exemption through gifts.
Spouse B who outlived Spouse A may then make a portability election to claim the remaining $11.06 million exemption from the estate of Spouse A.
Although formerly the regulations required the surviving spouse to elect portability within two years of the death of the first spouse, the IRS has now extended this timeline to five years after the death of the first spouse.
Although the portability deadline was previously extended to two years, the decision to extended it to five years was made after the agency found itself managing and receiving a large number of private letter rulings from estates after the two year deadline.
If you are married, you should discuss portability with your estate planning attorney.
Portability must be elected by the executor after the death of the first spouse.
The estate tax return Form 706 must be filed within five years of the death of the spouse.
Filing pursuant to Rev. Proc. 2022-32 to elect portability under Sec. 2010(C)(5)(A) must be noted by the executor at the top of the form.
Generally, electing portability is fairly simple.
The decedent spouse must have been a U.S. citizen or resident at the time of death.
Additionally, the executor must not have been required to file another estate tax return.
The five year extension for portability elections allows families to pass more wealth to their children without losing large sums to the government.
Although there is an extension, you should take the steps to elect portability as soon as possible after the death of the first spouse.
Reference: The National Law Review (Aug. 1, 2022) “IRS Extends Portability Election”