FOR IMMEDIATE RELEASE
October 20, 2022
Authors:
Alison Arden Besunder, 212-695-8100, ext. 289, [email protected]
Christopher Canfield, 212-695-8100, ext. 313, [email protected]
Surviving Spouses Have the Opportunity to Increase Their Estate Tax Exemption
The IRS recently extended the time for an estate to file a tax return to 5 years from the date of death. This means that a surviving spouse of a decedent who died in the last 5 years can file an estate tax return (a “706”) to preserve the Decedent Spouse’s Unused Exemption (the “DSUE”). What’s a DSUE? (We estate planners love our acronyms). The DSUE is the amount of the federal estate tax exemption that was not used by the decedent. In other words, if the decedent died with a gross taxable estate under $12 million (for 2022; roughly $11 million going back to 2017) but did not file a tax return or did not have a taxable estate, the surviving spouse can recapture that unused exemption amount by having the estate file the 706. Why is this helpful? Because the historically high federal estate tax exemption will be reduced to $6 Million in 2025 when the 2017 Tax Act expires. So, for example, if in 2026 the new federal estate tax exemption is $6mm for everyone else, the surviving spouse who has the benefit of the DSUE would have an exemption of ~$ $17-18 million.
BUT (there’s always a but). The extended time only applies if a 706 was not otherwise required and was only being filed to obtain the portable DSUE. This means that if an estate had a gross taxable estate that exceeded the exemption for the year of death, a timely (meaning within 15 months of death with a valid extension) 706 return would have been required and this special 5-year extension would not apply. Keep in mind that the gross estate includes assets in the Decedent’s name plus one-half of any assets held jointly with the spouse.
As with all tax matters, you should consult with an attorney and your accountant to assess whether you are eligible to take advantage of this extension and whether it is right for your particular situation.
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