Individuals may name a revocable living trust as the beneficiary of an IRA to enjoy additional control over how assets are distributed to trust beneficiaries. Although this method of structuring retirement assets is sometimes more advantageous than simply naming an individual as beneficiary of the account outright, particularly if the beneficiary is a minor or poses a spendthrift threat, if not structured properly it may jeopardize the opportunity for tax-deferred growth of the funds.
Limited options remain for late portability elections, but some estates may be eligible. Approximately two years ago, the process for electing portability of a deceased spouse’s unused federal estate tax exemption changed. Since then new portability extension rules have been in effect.
Estate Tax Exemption
Federal estate tax portability allows a surviving spouse to take advantage of their deceased spouse’s unused estate tax exemption. Executors or personal representatives are the only party permitted to elect portability on behalf of the decedent’s surviving spouse. All estates of decedents with dates of death on or after June 15, 2015 are subject to the revised extension policy. If an estate tax return is filed and the executor neglected to elect portability, certain estates are eligible for a 15-month extension.
Since then a number of Private Letter Rulings have highlighted late portability election approvals. These approvals have involved estates that demonstrated the taxpayer ‘acted reasonably and in good faith’ and included timely filing of the federal estate tax return (within 9 months of the decedent’s date of death).
Recently, Wealth Strategies Journal cited a Tax Notes summary of the Federal Bar Association Section on Taxation Law Conference in early March 2017. The note includes a comment made at the conference by a senior technical reviewer with the Internal Revenue Service. The reviewer, Karlene Lesho, was reported to have confirmed that estates may file for ‘good cause extensions.’
The value of the estate, citizenship of the decedent (nonresident decedents have differing eligibility), timeliness of the estate tax return filing date, and evidence of the executor’s reasonable care and actions must be reviewed if an individual wishes to file for a late portability election. Schedule an estate evaluation with a tax lawyer to identify options and determine if other tax issues should be addressed during estate administration.