Beginning in 2011, the exemption from federal estate tax applicable to the estates of most decedents has been $5,000,000 (or even slightly higher). If the assets comprising a decedent’s gross estate during that time were less than $5,000,000, the new federal “portability” laws allowed for transference of the unused estate tax exemption to the surviving spouse, thereby augmenting the spouse’s available exemption potentially applicable to lifetime gifts and wealth transfers upon the spouse’s later death (prior to 2011, the unused estate tax exemption of a decedent was lost). To preserve the portability of the exemption for the surviving spouse as aforesaid, a complete federal estate tax return (Form 706) for the decedent’s estate was required to be filed in a timely manner (i.e. usually nine months from the date of death or, if extended, not later than fifteen months from the date of death).
Many surviving spouses since 2011 may have unintentionally forfeited the portability opportunity simply because they may not have been aware of the estate tax return filing requirement. Accordingly, the IRS is now offering temporary relief for those decedents’ estates that filed no estate tax return and, but for the portability election, were not technically required to do so. Until December 31, 2014, any qualified executor or estate administrator wishing to preserve the portable (unused) estate tax exemption for later application to gift/estate transfers by the surviving spouse may do so by filing a complete and properly prepared Form 706 with the following statement appearing at the top of the return: “Filed Pursuant to Rev. Proc. 2014-18 to Elect Portability Under Section 2010(c)(5)(A)”.
If you are a surviving spouse of a U.S. citizen or resident decedent who passed away on or after January 1, 2011 (but before 2014), or if you know someone whose spouse died during that timeframe, this relief now provided by the IRS could have tremendous tax advantages to the surviving spouse’s estate. For example, since the current marginal estate tax rate is 40%, the preservation of a full unused exemption of a decedent could translate to as much as a $2,000,000 tax savings to the estate of the surviving spouse when he or she later passes away.
If you would like to obtain more information regarding this potential tax opportunity, please don’t hesitate to contact any of the Blalock Walters’ estate planning and wealth preservation attorneys. Thank you.