New estate tax change, 5-year relief for portability election

On July 8, 2022, the Internal Revenue Service issued new guidance that extends the timeline for the spousal portability election (Rev. Procedure 2022-32). Prior to the new guidance, the due date for an estate tax return that was required to be filed regardless of portability election was nine months from the decedent’s date of death (unless an extension had been requested). The IRS then had extended the deadline to elect portability for estates that were not otherwise required to file an estate tax return to two years from the decedent’s death in 2017. The new guidance extends the portability election period to five years from the decedent’s date of death. Therefore, if your spouse passed away less than five years ago, you may be able to file an estate tax return to transfer their unused estate tax exclusion to yourself.

The Federal estate tax exemption for 2022 is $12.06 million per individual ($24.12 million for married couples). During an individual’s lifetime or at death, the exemption is the total amount that can be given away without federal estate tax. Spousal portability allows spouses to combine their exemptions. By combining exemptions, the surviving spouse is then allowed to use the unused estate tax exemption of the deceased spouse.

To get the benefit of portability, the executor of an estate must file a federal estate tax return. Many assume that when one spouse dies, there is no need to file a federal estate tax return if the estate is below the federal estate tax exemption. While this is true, if an estate tax return is not filed then the surviving spouse cannot take advantage of the unused federal estate tax exemption of the deceased spouse. For example, if your spouse dies in 2022 and their estate is worth $5 million dollars, that will leave an unused exemption of $7.06 million. If a federal estate tax return (Form 706) is not filed to preserve this unused exemption, it is lost. If the federal estate tax return is timely filed, then the surviving spouse can use their individual exemption, plus the unused exemption of the deceased spouse.

Preserving the unused federal estate tax exemption is important because although the current federal estate tax exemption is $12.06 million it could be reduced in the future. The current estate and gift tax exemption is scheduled sunset on the last day of 2025. Unless a new law is passed, the exemption amount will drop back down to the previous exemption of $5 million set for inflation, this is expected to be $6.2 million.

If you had a spouse die within the last 5 years, you should speak to your attorney now to see if you qualify to file under the new IRS guidance for spousal portability. nature, consult your attorney for advice to fit your particular situation.

Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville,610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at rhobbs@owmlaw.com