The estates of many recently deceased American taxpayers will now more easily obtain a crucial tax benefit thanks to an Internal Revenue Service decision.
Revenue Procedure 2017-34, which takes effect immediately, gives the estates of many people who died in 2011 and after until at least Jan. 2, 2018 to make a "portability" election. This provision allows a surviving spouse to receive the unused portion of the partner's federal estate-tax exemption -- a move that can shelter millions extra in assets from tax.
For example, the federal estate-tax exemption in 2017 is $5.49 million per individual on assets other than those left to a spouse, which are tax-free. If a wife dies this year and leaves $1 million to heirs other than her husband, then her executor can make a portability election and preserve her remaining $4.49 million exemption -- immediately lifting the husband's total exemption to $9.98 million.
Congress passed the portability provision in 2010, enabling married couples to make tax-saving moves after the death of the first spouse. Before it was enacted, the unused exemption of the first-to-die was often lost if the couple didn't set up special trusts, and many people didn't.
But the new provision came with its own hitch: The portability election had to be made within months of death on an estate-tax return. Many executors and advisers were unaware of the benefit, especially if the estate wasn't taxable. Very few estates have owed federal death duties since the exemption was raised to $5 million per person, plus inflation adjustments, beginning in 2011.
Since the provision passed, the IRS has received numerous requests for portability relief due to missed deadlines. Each request for relief has a fee of up to $10,000, plus adviser costs.
The new procedure is much simpler.
"It's a welcome announcement that benefits both estates and the IRS, freeing the agency to use resources on other issues," says Beth Kaufman, an attorney with Caplin & Drysdale in Washington.
Now, executors for estates of people who died from 2011 to Jan. 2, 2016 have until Jan. 2, 2018 to file an estate-tax return and make a portability election. Normally, the agency will accept it as long as the estate wasn't required to file a return and didn't file one.
Executors for estates of people dying after Jan. 2, 2016 have two years from the date of death to file an estate-tax return and make the election.
Executors who miss either of these new deadlines will need to request individual relief.
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(END) Dow Jones Newswires
June 09, 2017 15:32 ET (19:32 GMT)