“Overlooking the need to elect portability is a common mistake—and one that can lead to the loss of valuable estate tax savings down the road.”
With the sizeable federal estate tax exemption, most upper middle class folks don’t need to worry too much about making a portability election in order to preserve the portability option for the future. Nonetheless, the IRS has provided relief for those who’ve failed to make a portability election on time. You should be aware of this, following the death of a spouse.
ThinkAdvisor explains it in its article, “For Estate Planning, Don’t Overlook Late Portability Elections.” The Portability Rules let a surviving spouse make use of both his or her individual federal estate tax exemption and the exemption granted to a first-to-die spouse.
This estate tax exemption can, however, frequently result in an issue for surviving spouses when the entire estate of the first-to-die spouse is sheltered from estate tax. A commonly overlooked key requirement for obtaining the benefits of portability, is that you must ask for it. Even when there’s no estate tax due upon the death of a first-to-die spouse, the executor of the estate must elect portability, by filing an estate tax return on Form 706 within nine months of death.
If you don’t make the election, it can eventually cause the estate of the second-to-die spouse to bear the entire tax burden—especially because the surviving spouse usually inherits most of a deceased spouse’s estate. That will increase the value of his or her own estate.
Failure to elect portability is common, and it could be valuable, such as a lower estate tax exemption in future years or if the estate grows substantially in the years between the death of the first spouse and the surviving spouse.
The IRS says that extensions may be available, if the estate can show there was good cause for the failure to file the portability extension. However, if the estate was originally required to file an estate tax return, there’s no extension. Some “good cause” excuses are that the taxpayer relied on a qualified tax professional’s advice that no portability election was needed or that, given the taxpayer’s experience and the complexity of the issues, the taxpayer was unaware of the need for making the election after exercising reasonable diligence. Relying on written IRS guidance or discovering the error and requesting relief before the IRS discovers the error, also qualify as good cause excuses.
Reference: ThinkAdvisor (April 11, 2017) “For Estate Planning, Don’t Overlook Late Portability Elections”