IRS Gives Tax Benefit to Estates and Extends Late Portability Election to 5 Years

On July 8, 2022, the IRS issued a new procedure that can be used to extend estate tax portability for up to five (5) years after the death of a spouse. This could be extremely useful for individuals who sought estate planning advice more than two years after the death of their spouse. Depending upon the couple’s estate value, a portability election could greatly reduce or eliminate the estate tax on the death of the second spouse.

Background:

In 2010, Congress enacted legislation that permitted the estate of a deceased person to “port” their federal estate tax credit (currently $12.06 million) for use by the estate of their surviving spouse upon that spouse’s death. The election is beneficial for couples who did not sign wills or trusts during their lifetimes that provided for this. In laymen’s terms, with the use of portability we do not have to lose the first deceased spouse’s federal estate tax credit.

Until now, the estate had to elect portability by filing an estate tax return within 18 months after the death of the first spouse. Otherwise, the executor of the Estate would have to file for a letter ruling and submit substantial evidence to extend the portability. The new election is easy. The executor files an estate tax return, which says on the top that it is filed to elect portability under the applicable regulation.

Planning Strategies:

Even if a deceased spouse did not have a taxable estate, the couples’ combined estates upon the death of the surviving spouse could be very substantial and then subjected to estate tax.

As of January 1, 2026, unless the law changes, the federal estate tax exemption will fall to $6 million per person. In context, for example, the beneficiaries of a married couple who owned $12 million in assets, with the first spouse having died and his or her estate not electing portability, would face federal estate tax at 40-50+% of the amount over $6 million, plus state taxes if applicable in their state. However, if the executor of the deceased spouse did file an estate tax return to elect portability the value of the deceased spouse’s estate would not be included in the surviving spouse’s estate. In this scenario, if the deceased spouse had $6 million in their estate and the surviving spouse had $6 million in their estate no federal estate tax would be owed upon the death of the surviving spouse and the heirs will receive a significantly larger inheritance.

If your spouse has recently died and your estate plan did not otherwise address this type of planning, you may wish to speak with your tax preparer regarding whether use of portability makes sense for your personal circumstances. While not every estate will be subject to estate tax, for those that might this extension of filing late portability election can result in significant benefit to your heirs.

If you need help with administration of your late spouse’s estate or review of your estate plan in light of a spouse’s death, we are here to help. Call our office at 480-922-1010 or email info@bivenslaw.com to schedule your consultation.

-Stephanie A. Bivens, Esq., CELA

|This blog post is not intended to give legal advice and does not constitute an attorney-client relationship. You should always seek advice of counsel for your specific circumstances|