New Portability Election Extension to Preserve Spousal Exemption

New Portability Election Extension to Preserve Spousal Exemption

2022 Portability Election Extension to Preserve Spousal Exemption

Under the current version of US trusts and estate tax law, each citizen and resident has $12+ million in exclusion amount for gifting and estate tax. That means that until a person has a net worth of more than $12 million (or gifted that much while they were alive) they can gift or bequest $12+ million without having to incur any gift or estate tax (subject to various exceptions, exclusions, and limitations).  In addition, when the recipient spouse is a US Citizen, there is no limitation to the value of assets that can be transferred to them without having to pay any estate tax. When the recipient spouse is not a US citizen and/or the recipient spouse’s value has significantly increased so that when they pass away, the estate may incur an estate tax. With portability, the surviving spouse may elect to use any unused portion of the exclusion amount of the decedent spouse. When it comes to Portability there is a limited amount of time that a person has to make an election. But under a 2022 Revenue Procedure (2022-32), the US government has extended the time in order to make a portability election.

Sec. 2010(c)(5)(A) 

(5) Special rules

      • Election required

        • A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse under paragraph (2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. Such election, once made, shall be irrevocable. No election may be made under this subparagraph if such return is filed after the time prescribed by law (including extensions) for filing such return.

What is Portability?

The concept of portability is relatively straightforward — even though it can become more complicated in practice. From a baseline perspective, portability means that a deceased spouse’s unused portion of their gift and estate exclusion is transferred to the surviving spouse so that the surviving spouse can use the unused portion of the estate tax exclusion. The surviving spouse gets the opportunity, if they so elect,  to use the unclaimed portion of exclusion. The unused value is then added to the surviving spouse’s exclusion amount so that surviving spouse has an additional exclusion amount available to cover her estate taxes, depending on the value of her estate.

Making the Portability Election

In order to make the election, the executor of the decedent’s estate files a form 706 timely. While the rules for making the election can be strict, a recent Revenue Procedure has relaxed the rules and extended the timing for making the election.

Revenue Procedure 2022-32

As provided by the Revenue Procedure:

      • Extension of time to elect portability.

        • Effective July 8, 2022, Rev. Proc. 2022-32 provides a simplified method for certain estates to obtain an extension of time to file a return on or before the fifth anniversary of the decedent’s death to elect portability of the deceased spousal unused exclusion (DSUE) amount. See Extension to elect portability, later, for more information.

      • Portability Election

        • An executor can only elect to transfer the DSUE amount to the surviving spouse if the Form 706 is filed timely, that is, within 9 months of the decedent’s date of death or, if you have received an extension of time to file, before the 6-month extension period ends. Extension to elect portability. Executors who did not have a filing requirement under section 6018(a) but failed to timely file Form 706 to make the portability election may be eligible for an extension under Rev. Proc. 2022-32, 2022-30 I.R.B. 101 (superseding Rev. Proc. 2017-34, 2017-26 I.R.B. 1282).

        • Executors filing to elect portability may now file Form 706 on or before the fifth anniversary of the decedent’s death. An executor wishing to elect portability under this extension must state at the top of the Form 706 being filed that the return is “Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under section 2010(c)(5)(A).” For more information on this extension, see Rev. Proc. 2022-32. Note. Any estate that is filing an estate tax return only to elect portability and did not file timely or within the extension provided in Rev. Proc. 2022-32 may seek relief under Regulations section 301.9100-3 to make the portability election.

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