The IRS recently issued Revenue Procedure 2017-34 which grants another round of relief for personal representatives who mistakenly forget to file an estate tax return that elects portability on behalf of the decedent’s surviving spouse. One of the major misconceptions with the portability of the estate tax exemption for surviving spouses is the method of acquisition. Many personal representatives believe the exemption is automatic, while the reality is that it must be requested by filing a federal estate tax return electing portability. The portability election applies to estates of decedents dying after December 31, 2010, if such decedent is survived by a spouse.
In 2017, the individual estate tax exemption amount is $5,490,000. Electing portability allows the spouse to double the amount that can be left to heirs estate-tax-free to nearly $11 million. The election essentially lets the surviving spouse carry over any unused portion of the deceased spouse’s exclusion, allowing him or her to shield the full double amount from estate taxes. If the surviving spouse’s net worth is way below the estate tax threshold, $5,490,000 in 2017, the personal representative may decide to just skip electing portability. But if the surviving spouse later wins the lottery, gets a legal settlement or inheritance, or if the estate tax threshold drops, the decision not to shield the extra dollars from estate tax could prove costly. Going forward, under the new IRS Revenue Procedure, personal representatives have two years, instead of just nine months, from the date of the first spouse to pass away to file an estate tax return at the first spouse’s death and affirmatively elect portability.
See Ashley Ebeling, IRS Ruling Helps Surviving Spouses Who Face Estate Tax Trap, Forbes, June 12, 2017.