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Late Portability Elections

Late Portability Elections

With the federal estate and gift tax exemption escalating to $5.6 million per person in 2018, many Ohioans will not pay any estate tax upon their death regardless of their marital status. Additionally, if you are married, federal law now permits you to pool your unused estate and gift tax exemption with your spouse so that in 2018 you can shield $11.2 million from federal estate and gift taxes for the benefit of your heirs (and note, the exemption is indexed for inflation so it rises each year).

However, in order for a surviving spouse to use their deceased spouse’s unused exemption, the survivor must properly make an election to use this amount by timely filing IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Form 706 is due on or before nine months after the deceased spouse’s date of death, though an extension may be obtained. If the return is not timely filed (including extensions), the executor of the deceased spouse and the surviving spouse may still yet seek relief to permit such an election, but this process required both an additional fee and a good excuse.

When the concept of portability began in 2011, many executors inadvertently failed to file an election as a result of the uncertainty surrounding this new wrinkle in the tax code and later sought to correct this oversight. Due to the IRS becoming inundated with requests for relief from late elections, the IRS announced a new policy effective June 9, 2017. The IRS issued Revenue Procedure 2017-34 which permits an automatic extension of time to make a portability election until the later of January 2, 2018, or the second anniversary of the deceased spouse’s death. This is great news for anyone who failed to file a timely portability election in 2011 or later and is now realizing that he or she should have done so.

This new timeframe applies only to “portability-only” estate tax returns (i.e. where an estate tax return is not already required because of the size of the gross estate). Therefore, if a portability election was not filed for a spouse who died as far back as 2011, there is still hope to preserve this unused exemption amount. However, the IRS provides specific requirements for using this amnesty period such as printing the following at the top of any estate tax return filed for this purpose: “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECTION PORTABILITY UNDER §2010(c)(5)(A)”.

If you believe that you should have filed a portability election but did not, contact us to discuss what the next step is to ensuring that you will be able to take advantage of your deceased spouse’s unused exemption to ensure that your estate does not pay any unnecessary taxes upon your death.

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