By: Justin M. Kennedy, Associate Attorney
Litherland, Kennedy & Associates, APC, Attorneys at Law
Every person is entitled to give away a certain amount of money tax-free, either during life or at death. Under the current federal estate tax law, all US citizens are each allowed an estate tax exemption of $5,000,000 (this amount is indexed for inflation and is $5,450,000 in 2016). This amount may also be reduced by gifts while living that exceed the annual exemption amount ($14,000 in 2016).
This blog article pertains to married people. Upon the death of the first spouse, the surviving spouse or the agent of the surviving spouse has nine (9) months to file IRS Form 706 to elect portability and claim the deceased spouse’s unused exemption amount.
As the estate tax exemption is per person, married couples have the potential of sheltering twice as much from the estate tax ($10,900,000 in 2016). In order to preserve the deceased spouse’s estate tax exemption, the surviving spouse would need to file Form 706 to elect portability. If the surviving spouse does not file Form 706 then the surviving spouse would only retain the survivor’s $5,000,000 exemption.
The surviving spouse may request an automatic six (6) month extension by filing IRS Form 4768.
If the surviving spouse does not file Form 706 or request an extension within nine (9) months of the death of the first spouse, portability may still be an option; however it would require a request to the IRS for a Private Letter Ruling (PLR). The current fee from the IRS for a PLR is $9,800. In the request for the PLR, the surviving spouse would need to show that he/she acted reasonably and that if the IRS grants the extension, it will not prejudice the interests of the government.
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- Beneficiary Designations, etc., Aren’t a True Substitute for a Trust - March 6, 2019