The US imposes gift and estate tax at the rate of 40%, but the tax only applies to the extent of gifts and transfers at death in excess of the “unified credit” amount, which is currently $5,490,000.
Effective from the beginning of 2011, the law has provided that where a deceased spouse does not use up his unified credit, his estate may elect on its timely estate tax return for the amount of the unutilized credit (the “deceased spousal unused exclusion” amount or “DSUE”) to be made available to a surviving spouse. An estate tax return is due nine months from the date of death, although an extension may be available.
Since an estate valued at less than the applicable unified credit amount isn’t required to file an estate tax return due to the absence of any liability, the IRS has been confronted with the issue that the very estates that could benefit from electing portability of the DSUE are the estates which don’t otherwise have to file a return. Where there has been a failure to claim the DSUE on a timely estate tax return the only way to get the benefit of the DSUE has been to obtain a private ruling from the IRS.
To address this problem the IRS has recently published a Revenue Procedure (Rev. Proc, 2017-34, 9 June 2017) granting an extension of time to file an estate tax return electing portability of an estate’s DSUE to the later of 2 January 2018 or two years from the date of death. The extension is only available where there was no liability to file the return.
2 January 2018 thus is the latest date that the estate of a decedent dying after 2010 and before January 2, 2014 may elect portability of the DSUE without obtaining a ruling from the IRS. Thereafter the two years from date of death deadline will apply.
While the surviving spouse of a deceased US citizen or resident may have the benefit of their own unified credit amount, and this may appear ample to eliminate potential estate tax, circumstances can change so it remains a good precaution to ensure an estate tax return is filed for any estate where a significant DSUE would be available.