The IRS has issued a new Revenue Procedure that provides a simplified procedure for surviving spouses that missed the 9-month deadline to file an estate tax return (Form 706) and make a portability election.  Portability is an important estate tax saving tool that allows a surviving spouse to “port over” (transfer) any unused portion of their deceased spouse’s unified gift and estate tax exemption and add it to their own.  If a surviving spouse anticipates that their estate will grow in value to an amount that is over their own estate tax exemption alone (currently at $5.49M per person), by adding their spouse’s unused exemption to their own, they may potentially save a significant amount on estate taxes.  With an estate tax rate up to 40%, this could mean a potential tax savings of millions of dollars.
Portability is a relatively new estate tax savings tool that was enacted under the American Tax Payer Relief Act in 2012 and many tax payers are still not aware of what it is or how it works.  Before this new Revenue Procedure was released, if a surviving spouse did not file the estate tax return within 9-months and elect portability, they had to apply for a private letter ruling from the IRS and meet a rigorous standard in order to obtain the IRS’s approval to qualify for a late portability election.  This process was not only time consuming and costly, but also had a lesser chance of being approved by the IRS.
Under the new IRS Revenue Procedure, if a surviving spouse failed to meet the 9-month filing deadline and did not have to file an estate tax return in the first place because the deceased spouse’s estate was under the exemption amount, the surviving spouse now has two years from the date of their spouse’s death or until January 2, 2018, whichever is earlier, to submit and file an estate tax return and make the portability election.  This new procedure eliminates the need for the private letter ruling and for the IRS to more heavily scrutinize the reasons for the late filing.
If you (or someone you know) missed the window to elect portability, this new Revenue Procedure may provide a second chance to make the election and save your heirs from paying the IRS a substantial amount of money in the future.  Right now, the estate tax exemption amounts are high and increase yearly based on inflation, but whether these levels will continue in the future is unknown, especially given changes in administrations and the political environment.  This could be a chance to take advantage of the IRS’s generosity and save on taxes while it lasts.
To find out more, please contact our Firm’s Estate and Tax Planning Section, whose attorneys are dedicated to ensuring that the maximum amount of your estate transfers for the benefit of your loved ones.
Stacie D. Nyborg,
 Estate and Tax Attorney
(Office) 805.966.7511