Persons can give away property valued at $5.49 million without federal estate and gift tax (including $4 million without Illinois estate tax) during lifetime or at death. Proper estate planning and follow up by a married couple can double the tax-free amount available at the death of the second to die. Since 2010, a surviving spouse of a couple who have failed to plan for federal estate taxes can claim his or her deceased spouse’s unused federal estate and gift tax credit shelter amount (“estate and gift tax” exemption) of $5,000,000 or more by filing a federal estate tax return (IRS Form 706).
This “portability” election can substantially increase the surviving spouse’s available federal estate tax exemption and thereby reduce or eliminate estate taxes payable to the federal government at his or her death. However, prior to IRS Revenue Procedure 2017-34, the return typically had to be filed within nine months after death in order to secure “portability” of the deceased spouse’s exemption. Now, the time allowed for a surviving spouse (or his or her estate) to claim the deceased spouse’s unused exemption (“DSUE”) has been extended to the later of (1) January 2, 2018, or (2) the second anniversary of the spouse’s date of death (provided the couple was married until one or both spouses died after 2009 and a federal estate tax return was not previously required or filed). There is no portability election for Illinois estate taxes – another important reason to plan now.