What to Know About Simplified Portability Procedures

After a spouse passes away, their widow or widower usually inherits the estate. However, it can be overwhelming and stressful to deal with estate matters while you are grieving. The Internal Revenue Service recently implemented a new, simplified portability procedure that provides certain surviving spouses an extension of time to handle the complexities of estate tax matters associated with their spouse’s passing. Portability also allows the surviving spouse, in some cases, an opportunity to minimize the impact estate taxes can have on a larger estate.

What is the Simplified Portability Method?

Portability can be used to help the surviving spouse avoid substantial gift or estate taxes upon their spouse’s passing. For the purposes of the federal and estate and gift taxes, portability allows a surviving spouse to use the decedent spouse’s unused exclusion amount. In other words, this option allows the surviving spouse to shelter assets from gift taxes during their lifetime and estate taxes after death.

One of the IRS’s underlying intentions in implementing the simplified procedure was to reduce the need for private letter rulings to grant extensions regarding portability for estates that had no filing requirement. Prior to the new procedure, a surviving spouse had 15 months from the date of their spouse’s death to elect the portability option of the deceased spouse’s unused exclusion. The deadline was later changed to two years in 2017 and was extended to five years in 2022. Ultimately, surviving spouses will now have more time — and potentially endure less stress — when it comes to dealing with estate tax matters.

What are the Requirements to Elect the Simplified Portability Procedure?

Under the simplified portability procedure, an individual now has five years from the date of their spouse’s death to file for portability. The simplified procedures do not require a user fee and should be used instead of the IRS’s letter ruling process. However, there are certain criteria that must be satisfied in order for a surviving spouse to elect the simplified portability procedure.

Pursuant to the IRS, the simplified portability procedure is available to executors of a decedent’s estate if the following criteria are met:

  • The decedent was survived by a spouse;

  • The decedent passed away after December 31, 2010 and was a citizen of the U.S. on the date of death;

  • The executor is not required to file an estate tax return under IRS Code § 6018(a) as determined based on the value of the gross estate and adjusted taxable gifts without regard for the need to file for the purpose of portability;

  • The executor did not file an estate tax return within the time required for filing an estate tax return; and

  • The executor filed Form 706 under the procedures specified by the IRS to make a late portability election.

Importantly, an extension of time to elect portability through the simplified procedure is not available for estates that are required to file an estate tax return under IRS Code § 6018(a). In such cases, the deadline for the election is governed by statute, rather than regulation.

Should You Elect Portability?

Portability can significantly reduce — or even eliminate — the estate tax upon the death of the second spouse. Another advantage of electing portability is that it can allow you to avoid the costs that come with creating a credit shelter trust. In addition, it allows the surviving spouse to have continuing control over the assets and permits a step-up in basis on all assets at the time of the death of the surviving spouse.

There are virtually no downsides to electing portability. However, all relevant factors should be considered before making the election, including non-tax reasons that could potentially affect the distribution of property under a will or trust. It’s also important to keep in mind that when portability is elected, the estate of the first spouse to pass can be audited at any time until the audit time frame for the second spouse to pass away expires.

Contact an Experienced Michigan Estate Planning Attorney

If you are considering electing portability and using the simplified procedure, it’s vital to have a knowledgeable attorney by your side to guide you through the process. The estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras work with clients regarding a wide variety of estate planning matters, and provide strategic counsel regarding portability. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.