The IRS has extended the deadline for filing an estate tax return for decedents dying in 2011, 2012, and 2013 to December 31, 2014. The purpose of the extension is to provide time for surviving spouses to elect portability on the return, which would allow them to use their deceased spouse’s unused exemption from the federal estate tax. Electing portability means, in effect, that a married couple can combine their available exemptions, potentially saving a family a significant amount of money when the second spouse dies.
For example, if a person died in 2011, and had an estate worth $2 million, and that $2 million was allocated to a Credit Trust (as many of our client’s estate plans would do), their surviving spouse could file an estate tax return, elect portability, and gain an additional $3 million in exemption to be used at the spouse’s death. (In 2011, the available exemption was $5 million, and the decedent used up $2 million by funding the Credit Trust.)
In the above example, an estate tax return would not need to be filed for any other reason (because $2 million wasn’t a taxable estate in 2011), and many families may have missed the opportunity to file a return within nine months of the death (which is the usual deadline) because the decedent didn’t have a taxable estate, so no return was required. The IRS, however, has extended the deadline for such returns until the end of this year to allow surviving spouses to take another look at the benefits of requesting this additional exemption.
While no one knows what the future holds, for many families, the additional cost of filing an estate tax return to request portability is a smart investment. It’s possible that a survivor’s assets will appreciate enough to create a taxable estate at the survivor’s death; it’s possible that estate tax exemption (currently $5.34 million and going up to $5.45 in 2015) will be lowered in the future. At any rate, it’s worth a second look until the end of this year.