By Jake Fram, Tax Senior Associate | Family, Executive & Entrepreneur Advisory Services Team
The IRS recently announced a change which will help to simplify, at least one aspect, of the often emotionally and technically difficult world of estate planning.
When a person dies, the federal government allows a portion of their assets to be excluded from their estate, $5,490,000 in 2017. By making an estate tax portability election under U.S. code § 2010(c), the unused portion of this benefit, the deceased spousal unused exclusion (or DSUE) can be transferred to a surviving spouse. The transferred credit can then be used to offset lifetime transfers, or transfers at death, by the surviving spouse.
Previously, the election had to be made through the filing of an estate tax return of the deceased spouse within 9 months of the decedent’s date of death. The exclusion amount had to be computed, and the election made, on the filed return. This process could be costly and laborious for taxpayers. Deadlines were often missed or requests were incorrectly filed, resulting in a backlog of requests to the IRS for exemptions.
Succumbing to the pressure of a high volume of appeals, the IRS issued a new Revenue Ruling, finally making the change a permanent one. Now, under the new procedure, an automatic extension is granted assuming the following requirements are met:
1. The taxpayer is the executor of the estate of a decedent who: (a) has a surviving spouse; (b) died after Dec. 31, 2010; and (c) was a citizen or resident of the U.S. on the date of death;
2. The taxpayer is not required to file an estate tax return under Code Sec. 6018(a) (as determined based on the value of the gross estate and adjusted taxable gifts, without regard to the need to file for portability purposes);
3. The taxpayer did not file an estate tax return within the time prescribed by Reg. § 20.2010-2(a)(1) for filing an estate tax return required to elect portability;
4. The executor must file a complete and properly-prepared Form 706 on or before the later of Jan. 2, 2018, or the second annual anniversary of the decedent’s date of death; and
5. The executor filing the Form 706 on behalf of the decedent’s estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER Code Sec. 2010(c)(5)(A).” (Sec. 3.01; Sec. 4.01)
The new portability rule is good news for taxpayers. It simplifies the process and elevates stress. Even with this change though, the estate tax world is a complex one. Whether you are starting an estate plan, revising an existing plan or in the midst of deal with an estate, Keiter’s experienced professionals are here to help guide you through the process. Contact us. 804.747.0000 | Email
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.