New Portability Election Extension Prevents Lost Estate Tax Exemption

Thanks to the Internal Revenue Service’s release of Rev. Proc. 2022-32, married couples who are not otherwise required to file an estate tax return at the death of the first spouse now have substantially more time to make a portability election, permitting the transfer of the deceased spouse’s unused federal estate tax exemption to the surviving spouse.

The Importance of Portability

Currently, each individual has a federal gift tax and estate tax exemption amount of $12,060,000 (in 2022). Any exemption amount not used for lifetime gifts remains available at death to offset federal estate taxes on the individual’s taxable estate. Amounts left to a surviving spouse typically do not require the use of a decedent’s remaining basic exemption amount because they qualify for the estate tax marital deduction. 

Any estate representative wanting to make a portability election for a deceased spouse’s estate must file a federal estate tax return, regardless of whether a return would otherwise be due.

Under Rev. Proc. 2022-32, estates filing estate tax returns solely to make the portability election (a portability-only return) have far more time to file their returns. A portability-only return may now be filed anytime on or before the 5th anniversary of the decedent’s death. The return must follow the simplified method for obtaining the extension as detailed in Rev. Proc. 2022-32, including a statement that the return is being “Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under Section 2010(c)(5)(A).”

This extended filing deadline is helpful because many estate representatives may not understand the need to file a portability-only return or may not discover the need to elect portability for a surviving spouse until after the federal estate tax return due date.

The new extended deadline for filing a portability-only return also should provide welcome relief to advisors and executors of eligible estates, who now have a greater opportunity to make the election, if advantageous. As always, however, it is important for married couples to seek guidance from their estate planning attorney to determine what tax planning techniques are best suited to their particular needs.

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