Portability has become an important concept in estate planning and administration since it was first codified in 2010, and made permanent under the American Taxpayer Relief Act of 2012. For individuals passing away after 2010, portability provides that if the spouse who passes away first does not fully use his/her gift and estate tax exclusion (up to $5,490,000 in 2017), the unused portion (the “DSUE”) can be “ported” to the surviving spouse and used for gift and estate tax purposes. This ported portion is in addition to the surviving spouse’s own gift and estate tax exclusion amount.
In order for the DSUE to be preserved, among other requirements, a federal estate tax return (Form 706) must be filed for the deceased individual in a timely manner and the specific election made. As the requirements for filing Form 706 have proven to be complicated and time consuming, especially when the combined value of a couple’s assets may not have been considered at justifiable levels or preserving the DSUE was not determined necessary until the surviving spouse passed away, many estates failed or elected not to file the return to preserve the DSUE.
The IRS permanently addressed this problem by issuing Revenue Procedure 2017-34, which extends the period during which a federal estate tax return may be filed to preserve the DSUE. Under this revenue procedure, an extension is granted until the later of January 2, 2018, or the second anniversary of the decedent’s death to file a complete and properly prepared Form 706 that meets all formal requirements and makes the necessary election.
With this extension, for individuals who passed away after December 31, 2010, their executors have a second opportunity to consider the benefits of filing a federal estate tax return to preserve the unused exemption and investigate whether the criteria of the revenue procedure to file the return can be satisfied. Depending on the combined value of a married couple’s estate, the tax savings could be significant.
About the Author
Shannon S. Frank, a Partner at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, has more than 25 years’ experience in the practice of business law, construction law, estate planning and probate administration, health care law, and real estate law. Shannon takes prides in giving exceptional service to her clients, recognizing that relationships with clients play a significant and essential role in providing tailored and comprehensive legal advice.