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Use Portability to Avoid a Potential Multi-Million Dollar Estate Mistake

A common financial mistake married farm couples make occurs when the first spouse dies, and the surviving spouse fails to “elect portability.”

It’s a process by which any unused federal gift or estate tax exemption can be transferred from the deceased spouse to the surviving spouse, according to Polly Dobbs, founding partner of Dobbs & Folz, LLC Peru, Ind.

What portability helps the surviving spouse achieve, ultimately, is to put the farm assets in the best position to be transferred upon his/her death, to the next generation without estate taxes being owed.

For 2023, each spouse has a $12.92 million exemption from federal gift and estate taxes, but that amount is set to “sunset” to around $6.6 million each in 2026. Electing portability can lock in that high exemption if a spouse dies before the sunset date.

Straightforward Process

To elect portability, the surviving spouse must file Form 706 Federal Estate Tax Return with the IRS.

“It’s not something that happens automatically, and it’s a crucial action to take – even if all the assets were jointly owned and no taxes are owed when the first spouse dies,” Dobbs says.

“Many certified public accountants (CPAs) and lawyers are unaware of portability, or don’t believe it’s worth checking into, but it is,” she adds. In fact, she tells advisers for their own protection to get it in writing if a surviving spouse declines to elect portability.

Portability is a recent process available to married farming couples, which is why many CPAs and lawyers are not aware of it.

One Form To Complete

IRS has simplified the process to elect portability in recent years.

“A certified public accountant or a lawyer can help the surviving spouse use shortcuts when filing a Form 706 just to elect portability, like skipping appraisals and valuations. The value of the assets may be estimated only to the nearest quarter million dollars of value at the first spouse's death,” Dobbs says.

Form 706 generally must be submitted to the IRS within nine months of the first spouse’s death. That deadline can be extended automatically with Form 4768, however, for an additional six months.

Additional Time Available

If a surviving spouse missed the initial deadlines for filing, they can still elect portability up to five years from the date of their spouse’s death by invoking “Relief under Revenue Procedure 2022-32,” Dobbs notes.

Dobbs estimates the costs to have an adviser’s help to complete the form and submit the paperwork will total less than $3,000, depending on the assets that need to be reported.

"The costs incurred are minimal when compared to the millions of dollars of estate taxes that could be saved,” she says.

January 30, 2023



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