IRS Extends Deadline for Widows' Election of Estate Tax Portability

If your spouse died since 2011, the IRS earlier this year extended the timeframe you have to make a "portability" election by filing a Form 706 Estate Tax Return, until the later of either January 2, 2018 or the second anniversary of the decedent's date of death.  See Revenue Procedure 2017-34.

Here's what that means and why it is important. Remember the "fiscal cliff" issue from a few years back?  The federal estate tax used to have a sunset provision.  When that expired, Congress did not update it right away, but debated what to do, before finally enacting a law that made the estate tax permanent (not sunsetting). The estate tax exclusion, the threshold amount of wealth below which you would not owe any estate tax, was set at $5 million, with an adjustment each year for inflation. (For 2017 that number is $5.49 million, and the IRS has announced it will go up to $5.6 million for 2018.  For ease of reference, I'm going to stick to the round number $5 mill. in this article). Each U.S. citizen has a $5 million exclusion, which means the combined exclusion for a married couple is $10 million.  When one spouse dies, the mechanism for the surviving spouse to claim the unused exclusion from the deceased spouse (this is known as the "deceased spousal unused exclusion," or "DSUE"), is called "portability."

Prior to the aforementioned change in U.S. law, a portability election was made by utilizing a particular trust, called a "credit shelter trust" or "A-B trust."  With the change, couples who did not prepare credit shelter trusts while both spouses were alive can still make a portability election of the DSUE, by filing Form 706.  The general deadline to do so (prior to this IRS change) has been nine (9) months from the date of death.

With Revenue Procedure 2017-34, the IRS is giving anyone whose spouse died more than 9 months ago an automatic extension of time to file and make the portability election.  If you are a widow (or widower) whose spouse died since 2011, were named as executor for the estate of someone who died since 2011 and was survived by their spouse, or are a family member or loved one of a widow in that situation, I encourage you to consult an estate planning/probate attorney or accountant to determine whether it would be beneficial to take advantage of this opportunity and file Form 706 by January 2, 2018.  Even if your initial reaction to this issue is basically, "I don't have $5 million, so who cares?"  I would encourage you to nevertheless check with our attorney while you have the option for this window of time, in the interest of helping to preserve your rights (or the rights of the widow), in event of future unforeseen circumstances.

This article from Forbes has a helpful overview of the situation as well, in layman terms, for further reading on this subject.

Nate Hinch is an attorney and partner at the law firm of Mueller, Reece & Hinch, LLC.  He has offices at 404 N. Hershey Road, Suite C, Bloomington, IL 61704, and 809 Detweiller Drive, Peoria, IL 61615, and can be reached by phone at (309) 827-4055 and email at nhinch@mrh-law.com.