|
|
 |
|
|
IRS Grants Extension of Time to Take
Advantage of Portability
Election
By Jeffrey
S. Hamilton
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:
- The deceased spouse must have died after
December 31, 2010 (portability was not available
prior to this time) and before 2014;
- 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
- 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.
Jeffrey
S. Hamilton counsels clients on matters
involving wealth planning and preservation,
including trusts, estates, wills, income tax
relating to trusts and estates, estate, gift and
generation-skipping tax, and charitable
organizations. He can be reached by phone at
214-953-6146, or by email at jshamilton@jw.com.
|
|
If
you wish to be added to this e-Alert listing,
please SIGN
UP HERE. If you wish to follow the
JW Wealth Planning group on Twitter, please CLICK
HERE. |
| |
| |
