Surviving spouses now have a longer window to benefit from unused gift and estate tax exemption of their dearly departed’s estate.

On July 8, 2022, the Internal Revenue Service issued new guidance that allows a deceased person’s estate to elect “portability” of their unused gift and estate tax exemption for up to five years after their death – a significant extension from the previous deadline of two years. So, if your spouse passed away less than five years ago, you may be able to file an estate tax return to transfer their unused estate tax exclusion to yourself. But first things first…

What Is Portability, and How Does One Get It?

Portability is a way of transferring the amount of the gift and estate tax exemption that a deceased spouse did not use to the surviving spouse. It is only available to married couples.

To get the benefit of portability, the executor of an estate must file a federal estate tax return. Previously, this return had to be filed within two years of a person’s date of death, assuming an estate tax return was not required sooner. Because so many estates kept missing this window, the IRS decided to extend it to five years.

How A Surviving Spouse Can Benefit From Portability

Let’s say your spouse has passed away, and you are the executor of their estate. If the total value of your spouse’s assets in their estate is below the threshold for federal estate taxation, you may assume that no estate tax return needs to be filed.

While this is technically correct, if you do not file an estate tax return, there is no way to transfer over your spouse’s unused estate tax exclusion for your benefit.

Important Details You Need To Know:

The federal gift and estate tax exclusion as of 2022 is $12.06 million per person ($24.12 million for married couples). This is the total amount a person – either during their lifetime or at death – can give away tax-free.

The current federal gift and estate tax exemption will be reduced by half in 2026.

In the above example, if your spouse’s estate was worth $2 million, that would leave an unused exemption of $10.06 million, which you could add to your own $12.06 million exemption, should you ever need it. To do this, you must file an estate tax return for your spouse and complete the section of Form 706 currently entitled “portability of deceased spousal unused exclusion.”

Why Now Is a Good Time to Consider If You Could Benefit From Portability

With the current federal gift and estate tax exemption being reduced by half in 2026, having a higher tax exclusion amount could help you minimize estate taxes when it comes to transferring your assets. For families with some wealth, this option could result in hundreds of thousands of dollars or more in tax savings!

So, if you have a spouse who died in the past five years, you should consider as soon as possible whether electing portability makes sense.

Criteria For Eligibility

The deceased spouse must have been a U.S. citizen or permanent resident on the date of their death

The executor must not have been otherwise required to file an estate tax return based on the value of the total estate and any taxable gifts.

NOTE: If an estate tax return was filed within nine months after the spouse’s death or an extended filing deadline, the portability option may also not be available.

Many families might not have an estate tax problem now, under the gift and estate tax exclusion of 2022. However, if the second spouse dies after 2026, that spouse’s estate could owe hefty taxes.

Portability allows you to plan ahead to avoid this problem. Schedule an appointment with the Law Office of Antoinette Bone today!

• Online scheduling: https://abonelawscheduling.as.me/
• Call: (682) 428-3046

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.

Nothing in this message is intended to provide legal advice.  This message is for educational purposes only.