The IRS has added a rare spot of good news this summer. On July 8, the Internal Revenue Service released procedures extending the time when a surviving spouse can file an estate tax return to elect portability without a private letter ruling from two years after death to five years after death. Revenue Procedure 2022-32 gives surviving spouses a lot more time to take advantage of an often overlooked opportunity.
The need for a longer period of time resulted so many requests for these letter rulings that an overburdened IRS decided to implement this change. What’s behind the increasing requests leading to the extended time period?
The rise in housing prices in New York and Florida means that many homeowners with healthy retirement accounts may find themselves very close or over the federal estate tax exemption level.
Despite recent months of turbulence, the recent bull market, spanning from 2009 to 2020, brought significant growth to most people’s portfolios.
Finally, as estate planning attorneys and taxpayers become aware of the coming dramatic drop in the federal estate tax exemption, they are looking for ways to manage tax liability, and the DSUE (Decedent’s Unused Spousal Exclusion) makes good sense.
When a first spouse dies, until December 31, 2025, they have a federal estate tax exemption of $12.06 million. On January 1, 2026, the federal estate exemption will drop to $6.2 million (adjusted for inflation).
DSUE is not automatic, so the surviving spouse has to be sure to make the election on the estate tax return (Form 706).
A reminder: The estate tax return is due nine months after death, and the estate may obtain a six-month extension. However, if the estate is not required to file an estate tax return, the IRS has discretion to extend the time for filing the return.
Prior to this new rule, the IRA allowed a blanket extension of up to two years after death to file returns to elect portability if the estate was not required to file a return. After that time, the estate had to apply for a private letter ruling to file a return to elect portability.
Any surviving spouse is advised to file a portability return whenever there’s a possibility that the surviving spouse’s estate might exceed the estate tax exclusion at their death. Simply put, there’s no reason not to.
If the surviving spouse fails to elect portability and their estate exceeds the estate tax exclusion, it could lead to millions lost to estate taxes.
If you have questions, we invite you to call the office at 516-307-1236 to make an appointment to discuss your situation.
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