IRS Extends Deadline for Certain Estates to Elect Portability: Could You Benefit?

By Jenna Ichikawa | Related Practice: Estate Planning & Administration

Surviving spouses could benefit from a new IRS rule that retroactively extends the time to file certain federal estate tax returns. In 2011, changes to the federal estate tax created a new concept - that of the ability to transfer any unused estate tax exemption from a deceased person to his or her surviving spouse. This concept, known as “portability” provides opportunities for greater flexibility in planning for, and minimizing, federal estate taxes. Portability does not automatically occur and must be elected as part of the probate of the deceased spouse’s estate. To elect portability, the deceased spouse’s estate must timely file a federal estate tax return (IRS form 706) which makes the portability election. There is no exception to this method of electing portability, even if the deceased spouse’s estate would otherwise have no obligation to file a federal estate tax return. Once made, the election transfers any unused federal estate tax exemption from the deceased spouse to the surviving spouse for use in protecting future gifts (made during the surviving spouse’s life or at death) from federal estate and gift taxes.

Though a federal estate tax return is due within 9 months of the date of death, the executors of many estates did not understand the importance of timely filing this return in order to elect portability. As a result the IRS recently released a new rule (Rev. Proc. 2014-18) which allows certain estates a retroactive extension of time to file the form 706. To be eligible for this retroactive extension of time the deceased person must have been a U.S. citizen who died between January 1, 2011 and December 31, 2013, leaving a surviving spouse. Also, it only applies if the estate was not required to file a federal estate tax return because the gross estate was less than the amount of the federal estate tax exemption in the year of death ($5,000,000 in 2011; $5,120,000 in 2012 and $5,250,000 in 2013). In other words, this retroactive extension only applies if the sole reason for filing the federal estate tax return was to make the portability election.

The revenue procedure is not available for estates of decedents for whom an estate tax return was already filed. Executors of estates for which this extension does apply, must carefully follow the procedural requirements and submit the federal estate tax return by December 31, 2014. Contacts an attorney if you would like to discuss whether portability planning is right for you and how to properly file a form 706 on behalf of a qualifying decedent’s estate.