The fix, described in IRS Revenue Procedure 2017-34, will help families with moderately large estates that failed to do a good job of keeping up with estate planning rules and paperwork.
An individual can now leave an estate with a value of up to $5.49 million without paying estate taxes. A couple can share a $10.98 million exemption.
Tax law puts imposes a little-noticed requirement on a couple that wants to use the full $10.98 million exemption.
The requirement involves the $5.49 million estate tax exemption tied to the first spouse to die. The couple may have to use part of the $5.49 million exemption value to shield the estate of that first spouse to die from estate taxes.
The leftover exemption value does not pass on to the second spouse automatically. To pass the unused value on to the surviving spouse, the executor of the estate is supposed to “elect portability,” on IRS Form 706, within nine months of the death of the first spouse.
Form 706 is the U.S. Estate (and Generation-Skipping Transfer) Tax Return.
If, for example, John Doe left an estate with a value of $2 million, his widow, Jane Doe, could take over $3.49 million in unused federal estate tax exemption value. Adding John Doe’s $3.49 million in unused estate tax exemption value to Jane Doe’s own $5.49 million individual exemption would give Jane Doe the ability to shield $8.98 million in estate value from federal estate taxes.
The IRS adopted the current rules in 2010. Since then, many families have learned about the need to elect portability while they were dealing with the estate, long after the nine-month portability election filing deadline had passed.