Laws governing estate planning are extremely complex and can change frequently. Working with an experienced estate planning attorney can help you anticipate changes to applicable laws as well as adjust your estate plan to continue providing the benefits you want whenever the law does change. One of the most misunderstood elements of estate planning involves the estate tax. Many individuals don’t believe the estate tax will apply to them because their estates are not large enough to exceed the exemption allowed, which in 2017 is $5.49 million for individuals and $10.98 million for married couples. While this is often true, many people often don’t calculate the value of their estate correctly. Even an otherwise average estate can exceed the exemption limit, especially if you factor in one spouse dying first and the second spouse inheriting the bulk of first spouse’s estate. However, there are tools that can protect your assets from the estate tax by keeping it within your allotted exemption amount.
A portability election is a tool available to spouse’s that survive the other spouse. When one person in a marriage dies, their estate is totaled to determine what – if any – tax consequences are triggered. When a first-to-die spouse’s estate is completely covered by the individual estate tax exemption and the bulk of the assets within that estate pass to the surviving spouse, this can cause the surviving spouse’s estate to surpass the individual estate tax exemption limit so that the combined value of the estates of both the first-to-die spouse and surviving spouse are taxed when the surviving spouse passes away. A portability election allows a surviving spouse to use leftover exemption amounts from the first-to-die spouse so there is a chance that the surviving spouse’s personal exemption can be combined with the leftover exemption from the first-to-die spouse to shield the surviving spouse’s estate from the estate tax, too.
According to a recent article from ThinkAdvisor.com, many individuals forget the most important part of portability elections: they must be asked for. The IRS expects you to request a portability election in a timely manner. Generally, in cases where no estate tax is due upon death for an individual’s estate because it is within the exemption amount, a surviving spouse must request portability within nine months of the death of the spouse from whom leftover exemption is being taken. Generally, estates that owe estate tax on a first-to-die spouse’s estate are not eligible for any portability. However, if you are eligible for a portability election and fail to request it within a timely manner, you may be eligible to request an extension.
Requesting an Extension
If you have forgotten to request or were simply unaware of the option to request a portability election within the time allotted, the IRS may allow you to file an extension if you can show good cause for your delay. The ThinkAdvisor.com article notes that common reasons that demonstrate good cause might include:
- Having relied on a tax professional’s advice that led you to believe no portability election was necessary or available; and/or
- Recognizing the error prior to the IRS and requesting an extension.
An extension can be requested by filing Form 4768 requesting the extension, and Form 706 which is the estate tax return. An experienced estate planning attorney can provide important background information to help you understand the federal estate tax as well as any other applicable federal taxes. It is important to remember that different regulations may apply to state-imposed estate taxes, and your estate planning attorney can help you prepare for the financial consequences of potential taxes on your assets.