On June 9, the IRS issued Rev. Proc. 2017-34, 2017-26 IRB, which provides a more liberal timeframe for certain estates to make the federal estate tax portability election. The additional time is only available for estates that are not otherwise required to file a federal estate tax return because the value of the gross estate is below a decedent’s remaining federal estate tax exemption. For 2017, the federal estate tax exemption amount is $5.49 million (and is indexed for inflation each year). This exemption represents the amount that an individual can transfer to the objects of his or her bounty free of federal estate and gift tax. Estates with gross asset values below the exemption amount are not required to file federal estate tax returns, except to the extent that a portability election is desired.
The portability election is a relatively new feature of the federal estate and gift tax regime that came into effect under the 2013 American Taxpayer Relief Act (ATRA), and, to a large degree, replaces the prior “use it or lose it” structure of the federal estate tax exemption rules. The portability election enables a surviving spouse to essentially “inherit” the decedent’s unused federal estate tax exemption amount and, thus, treat both exemptions (the surviving spouse’s exemption along with the exemption of the first spouse to die) as available to the marital unit. Thus, to the extent that the first deceased spouse does not make full use of his or her available federal estate tax exemption, an election can be made to add (or “port”) the decedent’s unused exemption to the surviving spouse’s exemption.
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