IRS Announces Changes to Estate Tax Portability Rules

Aug 2, 2022 | Estate Planning & Administration

Thanks to recent changes from the IRS, it is now easier for high-net-worth couples to reduce federal estate taxes. The IRS extended the period for portability elections to five years after the date of death of the first spouse.

The portability election allows a surviving spouse to use any estate and gift tax exemption remaining from the deceased person’s unused estate tax exemption along with their own. This is a significant benefit since the federal lifetime gift and estate exemption amount in 2022 is $12.06 million per person, or $24.12 million per married couple. Amounts in excess of this exemption are subject to estate or gift tax at a 40% rate.

Previously, surviving spouses had two years from the deceased spouse’s death to elect portability if the IRS Form 706 was not otherwise required to be filed for the deceased person’s estate. The new five-year election window is only available if the first deceased spouse did not legally require an estate tax return because the total value of the estate was less than $12.06 million. To make an estate tax portability election, the surviving spouse must file an IRS Form 706 on or before the fifth anniversary of the spouse’s date of death. When filing the taxes, it can be important to make the portability election to have the benefits transferred to the surviving spouse. By making a timely portability election, the deceased spouse’s unused exemption amount becomes available in the estate of the surviving spouse, thereby allowing the survivor to pass up to $24.12 million to non-spousal and non-charitable beneficiaries without triggering the federal estate or gift tax.

The federal lifetime gift and estate tax exclusion amount is scheduled to sunset back to $5 million on January 1, 2026. (Adjusted for inflation this amount may be closer to $6 million.) Many families may not have federal estate tax concerns under the current law and high exemptions but could pay federal estate tax if the second spouse dies after the exemptions are cut back in 2026. In those circumstances, claiming the first-to-die spouse’s unused exclusion amount could provide significant estate tax savings.

It is important to consult an estate planning professional who can help you develop a strategy for your estate plan that is right for you and your family’s specific circumstances.