IRS Grants Extension of Time to Take Advantage of Portability Election

by Jackson Walker
Contact

Wealth Planning Header

The IRS has provided relief for persons who missed the opportunity to make a "portability election." To understand the importance of the relief, a review of the basics is in order.

The Tax-Free Amount

Each person has an amount that can be given at death without incurring federal estate taxes. In 2014, this estate-tax-free amount is $5,340,000 per person (or a combined $10,680,000 for married couples). However, the estate tax does not normally apply to amounts given to a spouse or to a charity. For example, a will that leaves everything to a spouse will not trigger estate tax at the death of the first spouse to die (the "deceased spouse"). Because a gift to a spouse does not trigger tax, it will not use up any of the tax-free amount of the deceased spouse. This may cause a potential estate tax problem on the death of the surviving spouse because the surviving spouse has become the owner of all the property but may only be able to apply his or her own tax-free amount as an offset.

Portability of the Tax-Free Amount

Before 2011, sophisticated estate tax planning to utilize successfully the tax-free amounts of both spouses usually involved the creation of a certain kind of trust for the surviving spouse. Since January 1, 2011, the estate tax law has included a concept referred to in the planning community as "portability."

Portability is simply the process by which a surviving spouse can add the unused portion of his or her deceased spouse's tax-free amount to his or her own tax-free amount to offset or completely eliminate estate taxes which would otherwise be due and payable upon the surviving spouse' death.

Unfortunately, the surviving spouse does not automatically receive his or her deceased spouse's unused estate-tax-free amount. In order to accomplish transfer of the deceased spouse's unused tax-free amount over to the surviving spouse, a "portability election" must be made on a timely filed federal estate tax return for the deceased spouse. This return requirement exists even though the deceased spouse's estate would not otherwise be required to file a return because his or her assets were valued at less than the filing threshold.

Strict Deadline for Making the Portability Election

The law says a portability election must be made on a timely filed federal estate tax return. To be considered timely, the federal estate tax return must be filed within 9 months after the deceased spouse's date of death (or within the amount of time provided in any extensions obtained from the IRS). Unfortunately, many clients were unaware of this deadline to claim the benefits of portability for the surviving spouse. Until recently, if the deadline to make a portability election was inadvertently missed, the surviving spouse was simply out of luck. Without more sophisticated trust planning or a timely portability election, the deceased spouse's unused tax free amount could not be used to offset estate taxes due after the death of the surviving spouse and was therefore wasted. The law did not provide for a late portability election.

Relief to Make Late Portability Election – Rev. Proc. 2014-18

The IRS has decided to provide some limited relief for those wishing to take advantage of the portability election at a deceased spouse's death who may have been unaware of the strict deadline. IRS Rev. Proc. 2014-18 spells out the grounds for relief. Specifically, to claim the relief individuals must satisfy the following:

  1. The deceased spouse must have died after December 31, 2010 (portability was not available prior to this time) and before 2014;
  2. The value of the deceased spouse's estate must have been less than the estate-tax-free amount for the year of death (i.e., $5,000,000 in 2011, $5,120,000 in 2012, and $5,250,000 in 2013); and
  3. A Form 706 – Federal Estate Tax return must be filed for the deceased spouse's estate on or before December 31, 2014.

Any person who has lost a spouse after 2011 (but before 2014) and missed the filing deadline to make a portability election with respect to such deceased spouse's estate is encouraged to seek legal advice as soon as possible concerning whether a late portability election makes sense given his or her circumstances. As indicated above, this limited relief is scheduled to expire at the end of 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jackson Walker | Attorney Advertising

Written by:

Jackson Walker
Contact
more
less

Jackson Walker on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.