Estate Portability Update – New IRS Procedure Grants Relief for Missed Elections

Lawyers Mutual has discussed the estate tax “portability feature” in a prior alert and newsletter article.  This portability provision can be a great benefit to clients because it enables a surviving spouse to take advantage of the unused portion of the deceased spouse’s estate tax exclusion.  However, portability can also be a potential pitfall for estate attorneys because it requires the estate to file a federal estate tax return (Form 706), even if the filing is not otherwise required for the deceased spouse. 

The IRS recently provided relief for estates that failed to make a timely portability election with the adoption of Revenue Procedure 2014-18, 2014-7 IRB.  Under this Revenue Procedure, an automatic extension of time is now available for estates of decedents who died before January 1, 2014, that fall below the dollar threshold for having to file an estate tax return, and that want to elect estate tax portability. 

To qualify for the automatic extension, the following requirements must be met:

1. The decedent died after December 31, 2010, and on or before December 31, 2013;
2. The decedent was survived by a spouse;
3. The decedent was a citizen or resident of the United States;
4. No Form 706 was required to be filed because the value of the gross estate and adjusted taxable gifts did not reach the filing limit; and
5. No Form 706 was timely filed.

If all of the above requirements are satisfied, a prior failure to timely file can be cured by filing a Form 706 on or before December 31, 2014.  The person filing the Form 706 must state at the top that the return is “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER CODE SEC. 2010(c)(5)(A).” 

If you have previously filed an untimely Form 706 in an effort to elect portability, Lawyers Mutual strongly recommends that the return be re-filed so that it includes the quoted language above.

Revenue Procedure 2014-18 provides attorneys with an opportunity to reassess whether the spouses of past estate clients might benefit from the portability election.  If there is any possibility that the surviving spouse’s estate might exceed the $5,000,000 threshold, the portability election could result in significant tax savings.  In addition, if the second spouse is deceased and his or her estate paid estate tax as a result of the failure to elect portability, a refund may be available.

Laura Loyek came to Lawyers Mutual as claims counsel in 2009.  Her focus areas include real estate, litigation, appellate law, and bankruptcy. Laura serves on the Board of Directors of Wake Women Attorneys.  She is also an active member of the Real Property Section of the NCBA and the North Carolina Association of Women Attorneys. Contact Laura at 800.662.8843 or laura@lawyersmutualnc.com.