Estate Planning Red Flag: Your Spouse’s Estate Didn’t Make the Portability Election

Earlier this year, the IRS issued Revenue Procedure 2014-18, which permits estates to make a late portability election under certain circumstances. The rule change is of particular interest to same-gender married couples who were ineligible for portability and couldn’t have made the election before the law was changed late last year.

Portability allows a surviving spouse to take advantage of a deceased spouse’s unused estate tax exemption. But portability isn’t automatic: It’s available only if the deceased spouse’s estate makes a portability election on a timely filed estate tax return. This return is due nine months after death, with a six-month extension option, regardless of whether any tax is owed.

Previously, if a deceased spouse’s estate failed to make a timely portability election, the surviving spouse’s only recourse was to request a private letter ruling from the IRS — a costly and time-consuming process. Rev. Proc. 2014-18 provides an automatic extension to file a portability election if:

  • The deceased died after Dec. 31, 2010, and before Jan. 1, 2014,
  • The deceased was a U.S. citizen or resident at the time of death, and
  • The estate didn’t file an estate tax return, and wasn’t otherwise required to file one (because the value of the deceased’s estate was less than the exemption amount).

If these requirements are met, the estate may make the election by filing an estate tax return no later than Dec. 31, 2014, with the following language at the top: “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER SECTION 2010(c)(5)(A).”

In situations where the surviving spouse has subsequently died, his or her estate may be entitled to a refund of estate taxes that were overpaid without the benefit of a portability election made by the estate of the first spouse to die. If the deadline for filing a refund claim is approaching, Rev. Proc. 2014-18 permits the survivor’s estate to file a protective claim pending the portability election.

© 2014

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