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IRS Adopts New Procedure That Makes It Easier For Surviving Spouse To Pass On Greater Wealth Without Paying Estate Tax

Posted by John ("Terry") Brennan | Jul 15, 2022 | 0 Comments

            When estate planning, federal estate tax tends to be either a big problem or not a problem at all. This is due to the sizable exemption that the law offers. Each person in the US receives a $12.06 million exemption, which they can use to make gifts of money or property free of federal estate tax or keep until their death; at death, estate tax is payable only on the portion above the unused exemption. For most people, this is more than enough to cover their entire estate, especially for married couples, because of "portability" of the exemption, which enables a surviving spouse to use the first spouse's unused exemption. With "portability", a couple can exempt $24.12 million in assets.

            However, there has been one common problem with this arrangement. When Spouse A dies, surviving Spouse B is able to claim the remaining amount of A's exemption, but was required to file an estate tax return electing "portability". The return had to be filed within 18 months. After that, it was only possible to obtain "portability" by making a special request to the IRS (a private letter ruling). This relatively short time limit resulted in many families missing the deadline due to not knowing that they needed to file an estate tax return, forcing them to request extensions or simply outright miss this benefit. It also resulted in a backlog of requests for private letter rulings from the IRS. As a result, the IRS recently extended this grace period to five years in Revenue Procedure 2022-32.

            Now, provided it has been less than five years since Spouse A's death, Spouse B may submit a Form 706 estate tax return and write “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)” at the top of the return in order to claim this exemption. This is the only way to gain the portability of the spouse's estate tax exemption, so the other spouse must submit this return even if no estate tax is due..

            Once Spouse B has claimed Spouse A's exemption amount, the effect is permanent. From then on, they will be able to make monetary gifts and avoid estate tax on their estate for their own remaining exemption amount plus their spouse's remaining exemption amount (commonly called the Deceased Spouse's Unused Exemption or DSUE in tax and estate planning circles). Further, even if Spouse B did not claim Spouse A's unused exemption, Spouse B's executor may claim Spouse A's unused exemption amount while dealing with the estate, assuming it has still been five years or less since the first spouse died.

            While this extension neither hurts nor benefits those with estates worth less than $12 million, it is a substantial boon to those with large estates as it allows more flexibility to defer or avoid estate tax and mitigates the risk of a potentially expensive and inconvenient misstep upon the first spouse's death.

            To read this procedure yourself for more specific information, you can find it at Contact us today to learn additional ways you can save and your family money on estate or income taxes through estate planning.

About the Author

John ("Terry") Brennan

John “Terry” Brennan has been an attorney for over 30 years, practicing at large international firms, mid-sized firms, and solo practices. Given this extensive experience, Mr. Brennan has the instincts and understanding to counsel his clients through both simple an...


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