Advanced Underwriting Consultants

Ask the Experts – February 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: A client’s husband died in 2011 leaving his entire estate to her. His estate was small enough that no estate tax return was filed. Does the deceased husband’s unused estate tax exclusion amount automatically transfer to his surviving spouse? If not, is it too late to elect to have it transfer?

Answer: The deceased spouse’s unused exclusion amount (or “DSUE amount”) doesn’t transfer to his surviving spouse automatically—she must file an estate tax return (Form 706) on behalf of the deceased spouse’s estate. However, she should still have until the end of 2014 to make the portability election.

Portability is an estate planning option that allows a deceased spouse to transfer his unused estate tax applicable exclusion amount ($5.34 million in 2014, indexed for inflation) to his surviving spouse.

For example, if your client’s husband died in 2011 without having used any of his $5 million exclusion amount, his wife can add her husband’s full $5 million unused exclusion amount to her own current $5.34 million exclusion amount. Therefore, when the wife dies, she can pass up to $10.34 million.

Generally, to make the portability election, an estate tax return must be filed within 9 months from the deceased spouse’s date of death. Since no estate tax return was filed on behalf of her deceased spouse’s estate, she missed the 9-month window.

Ordinarily, your client would be out of luck, but the IRS recently issued Revenue Procedure 2014-18, extending the 9-month deadline for spouses who died in 2011, 2012 or 2013 and who were not required to file a federal estate tax return—qualifications your client probably meets.

Therefore, for taxpayer in the same position as your client, instead of the 9-month deadline, the deceased spouse’s estate has until the end of 2014 to file Form 706. For a spouse who died this year (or who dies thereafter), the ordinary 9-month rule still applies.

For those filing Form 706 late pursuant to Revenue Procedure 2014-18, the following language must be included at the top of the form in capital letters:

FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.