Convincing a Surviving Spouse to File an Estate Tax Return

The doubled estate and gift tax exemption, albeit temporary, resulting from the Tax Cuts and Jobs Act, has made it more difficult to convince surviving spouses with modest estates to file a Form 706 estate tax return to preserve the deceased spouse’s unused exemption (“DSUE”) amount.  Failure to file a Form 706 causes all of that remaining exemption to be forfeited.

If, as a practitioner, you are unable to convince a surviving spouse to file a Form 706, you’ll want to document your communications with the surviving spouse on this topic.  And, you’re not alone.  According to IRS data, only 681 NONtaxable returns were filed in 2017 claiming  DSUE amounts.

Curry, Jonathan. Getting Surviving Spouse to File Estate Return Now Even Harder. Feb. 1, 2019.


IRS Grants Extension to Make Portability Election

In PLR 201850015, the Decedent’s estate requested an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make a portability election to allow the Decedent’s surviving spouse to take into account the Decedent’s deceased spousal unused exclusion amount.

The Decedent’s estate represented that based on the value of the Decedent’s gross estate and taking into account any taxable gifts, the Decedent’s estate is not required under Internal Revenue Code § 6018(a) to file an estate tax return.

The due date of an estate tax return on which the portability election is made is nine months after the Decedent’s date of death, or the last day of the period covered by an extension if an extension of time for filing has been obtained.  An extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not otherwise required to file an estate tax return.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.  Although this private letter ruling does not provide the reason for the Decedent’s estate’s failure to make the portability election, the ruling does provide that the requirements of § 301.9100-3 had been satisfied.  Therefore, the Commissioner granted the request for the extension to make the portability election.

Note that the Commissioner may grant an extension of time to make an election whose due date is prescribed by regulation, not statute.  Therefore, if it is later determined, based on the value of the gross estate and taking into account any taxable gifts, that the Decedent’s estate was required to file an estate tax return, then because that deadline is statutory, the Commissioner would be without authority to grant the extension to make the portability election, and the grant of the extension in this ruling would be null and void.

PLR 201850015. Release Date: 12/14/2018.


Prenuptial and Postnuptial Agreements Should Address Filing of Form 706 to Elect Portability

In In the Matter of the Estate of Vose, the Oklahoma Supreme Court upheld an order compelling the Personal Representative of the decedent’s estate to file a federal estate tax return for the decedent’s estate and elect portability of the Deceased Spousal Unused Exclusion Amount pursuant to 26 U.S.C.A. 2010 (the “DSUE Amount”).    Here, the decedent’s son was the Personal Representative, and the surviving spouse was not the Personal Representative’s parent.  A prenuptial agreement was in place between the decedent and the surviving spouse, but the prenuptial agreement was silent as to portability.

The concept of portability was introduced into the United States Tax Code in 2010.  In the event a first-to-die spouse has not fully used the estate tax exclusion, portability allows the unused portion to be transferred to the surviving spouse.  Marital agreements entered into prior to 2010 could not have contemplated portability.

According to the Court, the determinative question was not whether the prenuptial agreement barred the surviving spouse from being a legal heir, but whether the agreement barred him from claiming any interest in the portability of the DSUE Amount.  Because the prenuptial agreement was silent as to the DSUE Amount, the Court held that the prenuptial agreement did not bar the surviving spouse from his interest in the DSUE Amount.  Here, the surviving spouse agreed to pay all costs of filing the Form 706.

The presenters at the Heckerling Estate Planning Institute of 2018 discussed this case and made the following suggestions in drafting pre and/or post-nuptial agreements to address filing Form 706 for the purposes of electing portability:

  1. Determine who pays the costs of
    1. return preparation
    2. the personal representative to provide the data
    3. an audit
  2. Whose appraisals are used—those of the surviving spouse or those of the estate?

In the Matter of the Estate of Vose, 2017 OK 3 (Jan. 17, 2017).