Under new guidance from the IRS, widows and widowers who missed the deadline to claim a deceased spouse’s unused estate and lifetime gift tax exemptions as their own may have up to five years to make this portability election and shield more of their wealth from future tax liabilities.
In 2023, U.S. tax laws provide individuals with a federal lifetime gift and estate tax exemption of $12.92 million, or $25.84 million for married taxpayers filing joint tax returns. Assets exceeding these thresholds generally are subject to federal estate tax imposed at a flat rate of 40 percent unless they are transferred at death to a surviving U.S. citizen spouse, which qualifies for an unlimited marital deduction. Therefore, a spouse may transfer a sizeable estate exceeding the $12.92 million limit to a surviving spouse at death and avoid using any of his/her federal estate tax exemptions. However, that transfer can increase the size of the widow’s/widower’s taxable estate and the subsequent estate tax liabilities family members will incur upon the future death of that surviving spouse. To avoid this scenario, an executor may make a “portability election” to transfer the first spouse’s unused lifetime exemption to the future estate of his/her widow/widower, thereby increasing the exemption available to the widow/widower’s estate and reducing heirs’ exposure to estate tax.
Estates of decedents who were U.S. citizens or residents and died after December 31, 2010, generally must elect portability of the deceased spouse’s unused exemptions (DSUE) on a timely filed estate tax return. However, when an estate tax return is not required, perhaps because the value of a decedent’s estate did not exceed the lifetime estate tax exemption, the IRS allows a decedent’s estate additional time to make a portability election.
Effective July 8, 2022, the period for making a portability election allowing a widow/widower to apply a deceased spouse’s DSUE to his/her transfers during life and at death is extended from two to five years after the first spouse’s passing. To qualify for this relief, executors of a decedent’s estate must file a U.S. estate and generation-skipping transfer-tax return on or before the fifth anniversary of the decedent’s date of death. When relief is granted, the DSUE amount is immediately available to the surviving spouse or the decedent’s estate if he/she has already passed away. However, if the increase in the surviving spouse’s applicable exclusion amount results in an overpayment of gift or estate tax by the surviving spouse or his/her estate, no claim for credit or refund may be made. This means that the extension of time to elect portability does not extend the period during which the surviving spouse or the surviving spouse’s estate may claim a credit or refund.
With the current lifetime estate and gift tax exemption limits scheduled to be cut in half in 2026, high-net-worth families must prepare now to use the exemptions available to them and/or make gifts to remove assets from their taxable estates. Preserving and passing wealth onto future generations is an ongoing process that requires the guidance of experienced advisors to ensure strategies you put in place today continue to meet your long-term needs and goals.
About the Author: Robert Mark Weiss, CFA, is a regional director and financial planner with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (941) 308-1126 or email
info@provweath.com.
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Posted on July 18, 2023