Estate tax returns normally must be filed within 9 months of death to make the deceased spousal unused exclusion (DSUE) election, but Rev. Proc. 2014-18 permits those surviving spouses who have not filed an estate tax return for a decedent spouse dying in 2011, 2012, and 2013, to make the portability election on an estate tax return filed by December 31, 2014. The portability election relates to the decedent’s surviving spouse and his/her claim to the DSUE amount by timely filing an estate tax return. Same sex surviving spouses may also take advantage of this filing extension. For example, if in 2011 a married couple had a $4M community property estate, with $2M allocable to the decedent, filing the estate tax return on Form 706 and making the DSUE election would result in a $3M exemption ($5M estate exemption - $2M decedent’s assets) that could be used by the surviving spouse in their own estate.
There are also modified filing procedures for these estates designed to minimize the estate tax return filing costs including, 1) the return is not required to report the value of the individual items qualifying for a marital deduction (assets to the surviving spouse) or charitable deduction (assets to a qualified charity), 2) value of assets must be estimated to the nearest $250,000, and 3) asset values must be made in good faith and with due diligence, but formal appraisals are not required. However, please note that date of death appraisals of investments and business assets are usually required for income tax purposes anyway.
In all situations, the surviving spouse must be made aware of the DSUE amount and the potential tax benefits. There may be unforeseen factors such as inflation, inheriting wealth, or winning the lottery that generate unexpected estate taxes in the survivor’s estate. All surviving spouses and/or the estate executors/administrators should be fully informed about the potential tax benefits of their DSUE amount.
Additional articles of interest:
Rev. Proc. 2014-18: Automatic Extension for Qualifying Estates to Elect Portability