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Portability & Timing of Transferring the Estate Tax Exemption to a Surviving Spouse

September 16th, 2022

Posted in Probate & Guardianship,Tax Law & IRS Defense,Wills, Trusts & Estate Planning

An estate tax return (Form 706) must be filed if the gross estate of a decedent, increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death. The filing threshold for 2022 is $12,060,000. The threshold is adjusted for inflation and increases each year. An estate tax return also must be filed if the estate elects to transfer any deceased spousal unused exclusion (DSUE) amount to a surviving spouse, regardless of the size of the gross estate or amount of adjusted taxable gifts. The election to transfer a DSUE amount to a surviving spouse is known as the “portability” election.

In other words, there is a way for spouses to combine or double their exemption for estate and gift tax. In order to claim the DSUE, you must elect portability which allows a surviving spouse to “pick up” the unused estate tax exemption of a deceased spouse. This does not happen automatically upon death of a spouse. The executor of the estate must file an estate tax return (Form 706), even if one isn’t required, within nine months of the date of death otherwise the unused exemption will be lost. You can file a six month extension, if desired, by filing Form 4768 before the estate tax return due date.

If you missed the due date to elect portability, the availability of an extension of time to elect portability of the DSUE amount depends on whether the estate has a filing requirement, based on the filing threshold provided under § 6018(a). If the filing threshold has been met, or in other words, if, independent of the portability election, the estate is required to file an estate tax return based on the total value of the gross estate and the amount of any adjusted taxable gifts, no extension of time to elect portability is available under Revenue Procedure 2022-32 . However, if, the sum of the value of the decedent’s gross estate and the total amount of the decedent’s adjusted taxable gifts is less than the filing threshold, Revenue Procedure 2022-32 provides a simplified method for certain taxpayers to obtain an extension of time to make a “portability” election under § 2010(c)(5)(A) of the Internal Revenue Code. To do so, the return must be filed within five years of the decedent’s date of death. Estates that do not qualify for this “automatic” relief may request an extension of time to make the portability election under § 2010(c)(5)(A) by requesting a letter ruling under the provisions of § 301.9100-3.

It suffices to say that if you are uncertain on whether or not to elect portability, it’s most likely the best option even if the surviving spouse’s exemption seems sufficient because your net worth or taxable estate may increase or tax laws may change. When evaluating your decision, consider the cost and time associated with the preparing the estate tax return.

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