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Potentially Big Estate Tax Savings for Wealthy Families

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According to a Wall Street Journal article, oftentimes, families and spouses of deceased individuals miss the deadline to file an estate tax return and select portability. Portability allows a surviving spouse to shelter assets from estate taxes at their death because typically, federal estate tax is levied per person. When a widow or widower does not choose portability, their estate may face unnecessary federal estate taxes if taxed for the assets of both spouses. The current exclusion amount that a surviving spouse can carry over from the deceased’s unused estate is set at $12.6 million per person

Recently, the Internal Revenue Service (IRS) extended the filing window for portability to five years due to the many grieving families that were missing the deadline and the procedural issues around filing without an estate administration. This five-year extension applies to nontaxable estates that are not required to file an estate tax return for any other reason other than to use portability. Prior to now, the filing window was a much shorter period, and is expected to be reduced again in the coming years.

Families with estates close to or exceeding $12 million, and even families with significantly smaller estates, should consider filing for portability or at least an intent to use portability because the thresholds for the tax may be reduced in the future. After January 1, 2026, the exclusion amount that an individual can shelter will drop down to approximately the $6 million range. The Biden administration has proposed dropping the exclusion rate to an even lower amount per person. Therefore, tax professionals believe filing for portability now could make a big difference for younger surviving spouses in the coming years.

To file for portability, the deceased must have been a U.S citizen or resident; be survived by a spouse; and have died after 2010.

This five-year extension means more families will be able to shelter their assets from estate tax without the time crunch. To avoid the possibility of having to request a private letter ruling on portability from the IRS, we recommend consulting your tax and trusts and estates professionals for advice on the IRS’s extended portability filing window and the requirements for filing.

 

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