Each individual currently has a unified credit for estate and gift taxes that allow for the transfer of $5.45 million in assets without paying any gift or estate tax. Estate portability allows a surviving spouse to increase their unified credit by any unused credit from the estate of a deceased spouse. This portability election is not automatic and requires the first spouse’s estate to file an estate tax return calculating the unused credit. With this election, there is now the opportunity to combine the two exclusions to pass nearly $11 million in assets before federal estate or gift tax applies.
Many estates that were under the threshold for filing an Estate Tax Return (Form 706) may have lost out on this opportunity, either because they were unaware of the procedure or the requirement to make the election on a timely filed Form 706, or because they did not believe this would be beneficial to them.
Estate portability is an effective tool that can simplify estate planning, remove the need to separate assets to equalize the spouses’ estates, and permit couples to maximize their exclusion amounts. In addition, because the future is unknown, portability ensures that the surviving spouse will have an additional exemption available for gifting, should there be a large windfall or extraordinary asset appreciation.
Recent Private Letter Rulings (PLRs) by the IRS indicate that favorable consideration is given to taxpayers who request relief and an extension to file the Estate Tax Return to elect portability when no estate tax return was filed at all. While Private Letter Rulings apply only to the taxpayer who requested the ruling and may not be used as precedence, this process provides an avenue for those taxpayers who acted in good faith, but failed to make the election in a timely fashion. Simple hindsight is not an eligible factor for the granting of relief from the IRS, but there are a variety of other factors that can be considered to allow for an extension to file the necessary 706.
The PLR process can be daunting, with very specific requirements for submission and a fee associated with the request. However, the estate tax savings and gifting benefits from approval of the extension to file for estate portability purposes may be well worth the effort and cost.
If you have questions about estate and gift tax, portability, or think a Private Letter Ruling to request time to file for estate portability might be beneficial, one of our experienced professionals can assist you. Please contact us at 703.385.8888 or at firstname.lastname@example.org.