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Forget “Must Love Dogs”—Go with “Must Love DSUE”
The Portability Election: Simplified Late Election Relief

Susan P. Rounds, JD, CPA, LL.M. (taxation), AEP®, TEP

For estates of decedents that do not have an estate tax filing requirement, the benefit of making the portability election can easily be overlooked to the detriment of the surviving spouse. The portability election provides that the decedent spouse’s unused estate exclusion amount can be used by the surviving spouse against subsequent gratuitous transfers made during life or at death. This amount, the “Deceased Spousal Unused Exclusion,” is affectionately known in the estate planning community as “DSUE.”

With the inflation adjusted estate tax exclusion amount projected to hit $5.6 million in 2018*, equating to $11.2 million between spouses, the failure to make the election is flirting with disaster and can result in a significant and unnecessary burden on the ability of the surviving spouse to transfer wealth.

Furthermore, as those of you who heard Professor Sam Donaldson’s talk on the DSUE at a previous Annual NAEPC Advanced Estate Planning Strategies Conference know, the presence of DSUE can make a potential new spouse appear much more attractive. So much so that many online suitors are now including DSUE in their dating profile.

To aid in the preservation of DSUE for the surviving spouse (and perhaps for subsequent spouses of the surviving spouse), the IRS released Rev. Proc. 2017-34 (June 26, 2017) to provide a simplified method to remedy any oversight in failing to make the election. (Although the release date is in the most popular wedding month, some say that the reason the IRS provided this relief is because of the large number of time consuming and cumbersome private rulings they have had to make granting an extension of time to make a portability election.)

Like the bloom on the rose, we have a fleeting opportunity to engage this simplified late election relief. The window of opportunity extends to the later of either January 2, 2018, or the second anniversary of the decedent spouse’s date of death. To make the request, the executor of the decedent spouse’s estate must prepare and file a Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return, by the new deadline. The return must state at the top that it is “FILED PURSUANT TO REV. PROC. 2017-34 TO ELECT PORTABILITY UNDER I.R.C. Section 2010(c)(5)(A).” There is no user fee.

Like a lover scorned, if this new window of opportunity is missed, taxpayers seeking relief after the second anniversary of the death of the first spouse must go back to whence they came – and apply for a private letter ruling.

This relief is not available to estates that are required to file an estate tax return. Estates that are required to file an estate tax return must make the portability election on a timely filed estate tax return based on the decedent spouse’s date of death.

*For the record, the inflation adjusted annual exclusion amount is targeted to be $15,000 in 2018.

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This information is provided for discussion purposes only and is not to be construed as providing legal, tax, investment or financial planning advice. Please consult all appropriate advisors prior to undertaking any of the strategies outlined in this article, many of which may involve complex legal, tax, investment and financial issues. This communication is not a Covered Opinion as defined by Circular 230 and is limited to the Federal tax issues addressed herein. Additional issues may exist that affect the Federal tax treatment of the transaction. The communication was not intended or written to be used, and cannot be used, or relied on, by the taxpayer, to avoid Federal tax penalties. MRG026830