Portability Exemption

Portability Exemption

Dear Garden State Trust:

My spouse died two years ago, leaving me an estate worth several million dollars. Because the estate was less than the federal exemption amount, I was told that no federal estate tax return was necessary. Was that advice correct?

—Having Second Thoughts

Dear Having:

It’s complicated.

Not filing the federal estate tax return for an estate less than the exemption amount was perfectly legal, so to that extent your advice was good.  If you are confident that at your death you will also fall below the federal taxation threshold, failing to file will not create a problem. (But keep in mind that under current law the exempt amount falls in half in 2026, and your asset base may continue to grow).

However, married couples may lose something if an estate tax return is not filed for the first spouse to die. What is lost is the right to elect the portability of the unused estate tax exemption.  With the election, the surviving spouse can effectively double the amount of family wealth shielded from the federal estate tax.

There has been a surge in private letter ruling requests to the IRS by persons in your situation, who are asking for an extension of time to file the estate tax return simply to make the portability election.  The IRS has granted the vast majority of such requests.

If you feel that your estate might benefit from an enlarged exemption, consult with your estate planning advisors on whether to pursue such an extension for yourself.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

(January 2022)
© 2022 M.A. Co. All rights reserved.