In an unexpected move, the IRS announced in Rev. Proc. 2017-34 (June 9, 2017) that estates who failed to file an optional estate tax return (Form 706) to elect “portability” of a deceased spouse’s unused exemption (DSUE) now have until at least January 2, 2018 to file. This relief extends all the way back to estates of individuals who died in 2011 or after, and left a surviving spouse.
To learn about the basics of portability and why it can be so valuable, read about why I called it “the tax election every surviving spouse must consider” in a February 2014 post. I also wrote about subsequent IRS announcements here and here.
With respect to last week’s welcome news, this Forbes article does an excellent job of explaining the background and process for the new Revenue Procedure.
Consider an Example
Harry met Sally in 1989. They married and had 3 children. In 2011, Harry died and left his entire estate to Sally. At that time, their combined net worth was $2 million. Sally considered filing a F706 to elect to take over Harry’s unused $5 million exemption, but decided that since her $2m estate was so much lower than her own $5m exemption, her estate would never need the additional $5 million exemption.
Fast-forward 6 years and between a successful new business venture and investment growth, Sally’s net worth now stands at $10.4 million. Sally’s estate planning attorney explains to her that since her estate exceeds the current $5.49 million exemption by $5 million, as it stands now her children would owe almost $2 million of federal estate tax upon her death. And furthermore, the attorney points out that had Sally timely filed that 706 portability election after Harry’s death, her combined exemption would stand at $10.49 million and her estate would not be subject to any federal estate tax.
Rev. Proc. 2017-34 is a multi-million dollar gift to Sally’s children. To take advantage, Sally must now file that Form 706 for Harry’s estate by January 2, 2018, and state at the top that it is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).”
Now let’s assume that Sally had died in 2016 and her children paid the federal estate tax due after her death. Rev. Proc. 2017-34 also lays out a procedure for Harry’s executor to file for the portability election and for Sally’s executor to then file an amended return to make a claim for the nearly $2 million refund.
The Bottom Line
Families of individuals who died since December 31, 2010 and left a surviving spouse now have a second bite at the apple to make a missed portability election. For deaths before January 2, 2016, that opportunity will end on January 2, 2018. For deaths after 1/2/16, the deadline will now be 2 years after the date of the death.
If you are a surviving spouse or the representative for the estate of a married Illinois decedent who has died since 2011 that didn’t already make a timely portability election on a Form 706, please feel free to give us a call at (847) 991-2250 to discuss whether it might be worth taking advantage of this time-sensitive opportunity. And if you know someone who might benefit from this news, please share!
Image courtesy of Stuart Miles / freedigitalphotos.net