Revenue Ruling 2017-34 eases the process for an executor to get relief from having failed to make a timely ‘portability election’ to allow a surviving spouse to take advantage of a deceased spousal unused exclusion amount (DSUE).
Forbes’ recent article, “IRS Offers Estate Tax Relief To Widows And Widowers,” advises that some quick action may be needed to take advantage of the relief from the deceased spousal unused exclusion amount (DSUE).
DSUE came from a simplification of the estate tax in 2010 and the two most important provisions of the estate tax for many “moderate” millionaires: (i) the unified credit, which protects $5.49 million from estate tax in 2017; and (ii) the unlimited marital deduction. The unlimited marital deduction allows any amount left to the surviving spouse to be free of estate tax, if chosen. However, upon the death of the surviving spouse, any remaining marital deduction property is included in the taxable estate of the surviving spouse.
This ruling does not apply to New York estate taxes. If the New York exclusion of the first spouse to die is not used, it is lost. If the surviving spouse’s estate exceeds the New York exclusion amount, the estate tax on the amount over the New York exclusion is taxed at 16%. If you do not take advantage of the federal exclusion, the tax on the excess can exceed 46%.
A big concern of basic estate planning in the past was to make sure that a couple did not waste one of their unified credits. The DSUE saves people from creating trusts to work around losing the unified credits.
The relief offered by Revenue Procedure 2017-34 is available for the estates of decedents who died on or after January 1, 2011, where no federal estate tax return was required and none was filed. Previously, to get this relief, you needed to obtain a private letter ruling from the IRA. The cost of such a ruling was over $20,000, including a $9,800 “user fee” to the IRS.
The executor can take advantage of the relief by filing an estate tax return with the election and referring to the revenue procedure at the top of the first page of the return. It’s available until January 2, 2018. After that, the procedure is available up to two years after the date of death.
This issue should be considered by moderate millionaires (those with a few million dollars), if they are surviving spouses of people who died after 2010, and there was no estate tax return filed.
Look at the administrative headache of accomplishing the filing versus the chance that you might die with a net worth over the exclusion amount. Remember: it’s not your current net worth, but rather what your date of death net worth might be. If you think this may apply to your situation, please call the office to make an appointment. It will be better to start this process long before the deadline so there is time to do this properly and thoughtfully. Better yet, proper planning now can avoid this problem later.