The IRS has just issued Revenue Procedure 2022-32, which allows a surviving spouse to elect "portability" of the deceased spouse's unused exemption (DSUE) amount up to five years after the decedent's date of death.
Under the current estate tax law, each person has $12,060,000 to exempt from estate taxes. A married couple can double this to exempt $24,120,000 from estate taxes.
For most couples, $12,060,000 is way more of an exemption than they will ever need. However, wealthy couples with estates over $12M, may need both spouse’s exemption amounts to avoid the estate tax. When the first spouse dies, the surviving spouse can file an estate tax return (IRS Form 706) and elect to “port over” her deceased spouse’s exemption amount.
Example:
- Husband and wife’s combined estate is $16M when husband dies.
- They live in California, so their assets are community property.
- Husband’s share is $8M. Wife’s share is $8M.
- Their living trust states that all assets are to go to the surviving spouse.
- After husband’s death, wife’s estate is $16M, which is more than her $12.06M exemption.
- However, if the wife files a 706 estate tax return for her husband, she can “port-over” or bank his $12.06M exemption.
- Ten years later when she dies, their children can use her husband’s $12.06M exemption plus whatever the exemption is the year she dies.
- By filing the 706, the family can essentially double the amount that will be exempt from the estate tax.
Revenue Procedure 2022-32 extends the deadline to file the 706 to five years. As long as no estate tax is owed, the surviving spouse now has five years after the deceased spouse’s death to file the 706 and elect portability. More details can be found here from the Journal of Accountancy.