“Portability” (I’ll explain its definition later in the blog) allows the personal representative of an estate to preserve a deceased spouse’s unused federal estate and/or gift tax exemption amount for later use by the surviving spouse which may be applied against future gifts by the spouse and/or his or her federal taxable estate upon death.
In order to preserve portability, a personal representative is required to make an election on a timely filed IRS Form 706, following the death of the first spouse. If Form 706 is not filed within nine months of a decedent’s death or within 15 months if a request for an extension of time to file the return was timely obtained, a personal representative may be permanently prevented from preserving portability.
Recently, the IRS enacted Rev. Proc. 2017-34, which provides a permanent simplified method for the estates of decedents to obtain an extension of time to elect portability. This new revenue procedure states that if a portability election has not been timely made, a personal representative may do so on the latter of January 2, 2018 or the second anniversary of the decedent’s date of death, assuming certain administration requirements are met.
To make a late portability election under Re. Proc. 2017-34, the following conditions must be met; (a) the decedent must be survived by a spouse; (b) the decedent must have died after December 31, 2010; (c) the decedent must have been a citizen or resident of the United States on the date of death; (d) the executor must not have been required to file an estate tax return undersection 6018(a) of the Code (as determined based on the value of the gross estate and adjusted taxable gifts and without regard to the need to file for portability purposes); € the executor must not have filed an estate tax return; (f) the person permitted to make the election must file a complete and properly prepared Form 706 on the latter of January 2, 2018, or the second annual anniversary of the decedent’s date of death; and (g) the Form 706 must state at the top that the return is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
How It Works
Making a late portability election is recommended for most estates that meet the above criteria, even if a surviving spouse’s assets do not exceed the present federal estate and gift tax exemption amount, in large part because we cannot predict what Congress might do in the future, nor is it possible to foresee what could become of a client’s assets whether through good fortune or growth. It is feasible that congress will, in the future, adjust the exemption amount or another aspect of the existing estate tax laws to the detriment of future beneficiaries, or that the client could come into a large cash reward.
For many taxpayers, preserving portability may ultimately prove to be unnecessary. However, for certain taxpayers, it could result in substantial tax savings upon death. Rather than “wait and see” what happens in the future, counsel representing estates of decedents who are survived by a spouse should immediately consider a portability election while it is guaranteed and does not require the expense and uncertainty of attempting to obtain a late portability election in the future.
To discuss your NJ Estate Probate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Estate Probate Administration Attorney