Matz Quoted on IRS Changes to Estate Tax Portability

Partner Kevin Matz was quoted by CNBC on changes made by the US Internal Revenue Service (IRS) in providing a simplified procedure for executors of estates that have not previously filed federal estate tax returns (where no federal estate tax return was otherwise required to be filed) to obtain the benefit of “portability” of the unused federal estate tax inclusion amount of a deceased spouse who is survived by a surviving spouse.

The IRS currently allows up to a $12.06 million tax exemption for gift and estate taxes. By electing portability on an estate tax return, a surviving spouse may claim both their own and their deceased spouse’s unused exemption. This brings the total amount that can pass free of federal estate and gift tax for a married couple to $24.12 million under current law. The current law is, however, scheduled to “sunset” (to roughly one-half of such amount) after December 31, 2025 — a change that Kevin described as “potentially very, very significant.”

Though estates with assets and certain lifetime gifts below the $12.06 million exemption threshold are not technically required to file a federal estate tax return (putting aside portability tax-saving concerns), Kevin notes it may be risky for wealthy families to skip the filing, particularly where the estate includes assets that are more difficult to value, such as certain types of businesses, or interests in closely-held businesses that could potentially be subject to the so-called “string provisions” of the Internal Revenue Code.

He added that when a deceased spouse’s wealth appears below the threshold in the case of a late filed estate tax return, the IRS could block the surviving spouse from electing portability if the agency later questions the estate valuation.  

“That would be a very bad result produced by not seeking professional advice,” he said. So the best course will often be to timely file a deceased spouse’s federal estate tax return even where the estate is below the federal estate tax filing threshold and not rely on the newly announced simplified IRS procedure for late filed returns.

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