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IRS Expands Relief for Missed Portability Elections for Surviving Spouses

On January 27, 2014, the IRS issued Rev. Proc. 2014-18 which provides a remedy for estate representatives who did not elect to combine the deceased spouse’s unused exclusion amount with the surviving spouse’s exclusion amount in a timely manner. As an example, assume the first spouse died in 2012 with an estate of $2,120,000. The Applicable Exclusion Amount (“AEA”) for 2012 was $5,120,000. Assume that his estate uses $2,120,000 of the deceased spouse’s AEA which leaves $3,000,000 remaining as the Deceased Spouse’s Unused Exclusion (“DSUE”). The executor of the estate can elect to combine the $3,000,000 DSUE amount with the surviving spouse’s AEA (currently 5,340,000 for 2014), giving the surviving spouse a total federal estate tax exclusion in 2014 of $8,340,000.

The relief provided by Rev. Proc. 2014-18 gives certain estates which did not file a federal estate tax return on a timely basis to now file a Form 706 Federal Estate tax return and make a delayed portability election.

Prior to January 27, 2014 the only option to remedy a late return was to request a private letter ruling with the Internal Revenue Service to seek permission to file a late return and pay a significant user-fee ($2,000 to $10,000). It is no longer necessary to seek private letter ruling or pay any user fees.

This relief is also available for the surviving spouse of a same-sex marriage. However, this relief is not available for domestic partners who are registered but not married in a state or county that had authorized same sex marriage.

If you are the surviving spouse and your spouse died after December 31, 2010 and prior to January 1, 2014 you should review this situation with your estate planning attorney and accountant to determine if filing of Form 706 Federal Estate Tax Return and making a portability election is possible and would be appropriate for you. The Federal Estate Tax return with the delayed portability election must be filed by December 31, 2014.

If you have any questions, feel free to contact any of the estate planning attorneys with the firm.