You Now Have Five Years to Make Portability Election

• July 12, 2022
• Paul Neiffer

When a farmer passes away with some unused lifetime exemption remaining, most surviving spouses should consider filing a Form 706 to elect portability. The election “ports” the remaining exemption amount over to the surviving spouse.

The surviving spouse can either use this amount to make lifetime gifts or it is allowed to be used at their estate. For farmers who pass away before 2026, the surviving spouse is allowed to keep the current higher exemption amount even if it is reduced in the future. Let’s look at some examples:

Ted passes in 2022 and has a taxable estate of $6.06 million. The current exemption is $12.06 million. Mary, his surviving spouses files Form 706 to elect portability. She passes away in 2025 worth $15 million. The estimated exemption amount at that time is $12.5 million plus the $6 million ported over eliminates all federal estate tax.

However, now let’s assume that she passes away in 2026 when the exemption is only $7 million (inflation adjusted) and her taxable estate is $16 million. Her heirs will pay estate tax on $3 million.

Now let’s assume that Ted was worth zero when he passed away and Mary passes in 2026 worth $16 million. Now her total exemption amount is $12.06 million plus $7 million and the heirs will owe no tax.

If Mary does not use the ported exemption to make lifetime gifts and remarries she will lose the exemption that is ported over.

Now for the good news. The IRS issued guidance in 2017 essentially giving everyone an automatic two years to make this election. However, they continued to received many applications to extend this time period due to people not understanding the requirements, etc.

Therefore, the IRS just issued Revenue Procedure 2022-32 that now allows an automatic five year period to make this election. Preparing Form 706 is normally a complex task, however, if you are only preparing the form to make the election, the IRS has simplified the process. You don’t need any appraisals and can round amounts down to the nearest $250,000.

The Revenue Proceedure outlines the steps needed to make the election if you are past the normal filing period but less than five years after death. This is very good news for many estates.

, Farm Taxes, Legacy Planning | Comments Off on You Now Have Five Years to Make Portability Election