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Unlocking the Deceased Spousal Unused Exclusion (DSUE). Learn the rules for filing IRS Form 706 to ensure your family maximizes their federal estate and gift tax exemptions before the significant changes expected in 2026.
For married couples, securing your combined financial legacy requires careful consideration of federal estate tax laws. While the current estate tax exemption is historically high, a critical provision known as Portability is the key to ensuring you do not lose millions of dollars in potential tax-free transfers upon the first spouse’s death. This concept is not automatic; it is an elective process that requires timely and precise action.
Understanding portability—what it is, how to elect it, and its limitations—is essential for comprehensive estate planning, especially as the current exemption levels are scheduled to be reduced drastically in the near future.
Portability is a provision in the federal estate and gift tax law that allows a surviving spouse to utilize any unused portion of their deceased spouse’s estate and gift tax exemption. This unused amount is formally referred to as the Deceased Spousal Unused Exclusion (DSUE) Amount.
Historically, if a deceased spouse left all assets to the surviving spouse (utilizing the Unlimited Marital Deduction), the deceased spouse’s individual exemption was often “wasted” because the transfer was tax-free anyway. Portability solves this issue by permitting the surviving spouse to add the DSUE amount to their own personal exemption, effectively doubling the couple’s total potential exclusion for future lifetime gifts or transfers at death.
If the individual exemption is $13.61 million (2024), and a spouse passes away having only used $1 million of their exemption, the remaining $12.61 million becomes the DSUE amount. The surviving spouse would then have their own $13.61 million exemption plus the $12.61 million DSUE, resulting in a total combined exemption of $26.22 million.
Portability is not automatic. To receive the DSUE amount, the estate of the first deceased spouse must file a federal estate tax return, specifically IRS Form 706, and make an affirmative election. This is required even if the gross estate value is below the statutory filing threshold and no estate tax is actually due.
The timeliness of filing Form 706 is the most critical requirement for electing portability.
| Filing Condition | Deadline |
|---|---|
| Standard Filing Deadline (No Extension) | Within 9 months of the date of death. |
| Standard Extension (Upon timely request using Form 4768) | An additional 6 months (15 months total). |
| Simplified Method Relief (Rev. Proc. 2017-34) | On or before the 5th anniversary of the decedent’s death (if no estate tax return was otherwise required). |
CAUTION: The “Sunset Provision”
The current elevated estate and gift tax exemption amounts are temporary. Unless Congress acts, the exemption is scheduled to be cut roughly in half beginning on January 1, 2026. For couples with significant assets, securing portability now is critical to hedge against this substantial future reduction in tax-free transfer capability.
The primary benefit of portability is flexibility in estate planning, often simplifying matters by reducing the reliance on complex, restrictive trust planning like traditional “A/B” or “Bypass” trusts. However, the portability rule is not a complete solution and has specific limitations that must be addressed by your planning team.
While portability makes planning easier, some couples still choose to fund a Bypass Trust (Credit Shelter Trust). Assets placed in such a trust can grow free of estate tax in the surviving spouse’s estate, whereas DSUE amounts are fixed at the date of the first spouse’s death and do not shield post-death appreciation. Furthermore, a Bypass Trust can provide asset protection and control over the ultimate beneficiaries, which portability alone cannot.
Navigating the complex rules of estate taxation requires proactive engagement with a qualified Tax Expert and Legal Expert. Here are the key takeaways for married couples:
Estate Tax Portability is a vital tool for married couples to manage potential federal estate tax liability, especially in the face of the upcoming sunset provision. By taking the necessary administrative step of filing Form 706, a surviving spouse can significantly increase their tax-free exclusion amount, providing peace of mind and substantial wealth preservation for the family’s future.
A: Yes, portability is a provision of the federal estate and gift tax law. It does not apply to the Generation-Skipping Transfer (GST) tax exemption, and it does not affect state-level estate taxes, which must be planned for separately.
A: The standard deadline is nine months from the date of death. However, if the estate was not otherwise required to file Form 706, the IRS has provided a simplified method (Rev. Proc. 2017-34) allowing the executor to file on or before the fifth anniversary of the decedent’s death.
A: Yes, the DSUE amount is added to the surviving spouse’s own lifetime gift and estate tax exemption. This combined amount can be used to shield gifts made during the surviving spouse’s life as well as transfers made at their death.
A: If the surviving spouse remarries and their new spouse subsequently dies, the DSUE from the prior deceased spouse is lost. The surviving spouse can only use the DSUE amount from their last deceased spouse.
This blog post is for informational and educational purposes only. It is generated by an artificial intelligence model based on public knowledge and does not constitute legal or tax advice. Estate tax law, including the rules regarding portability and Form 706, is highly complex and subject to change. Readers should consult with a qualified Legal Expert or Tax Expert to discuss their specific situation and to ensure all required filings and elections are made correctly and timely. Failure to file Form 706 on time will result in the permanent loss of the portability election.
Estate Tax Portability, DSUE, Deceased Spousal Unused Exclusion, Form 706, Estate Tax Exemption, Unlimited Marital Deduction, Gift Tax, Estate Planning, Sunset Provision, Marital Trust, Bypass Trust, Timely Filing, Portability Election, Surviving Spouse, Estate Tax Liability, Filing Threshold, Gross Estate, Estate Tax Rules, IRS, Tax Expert
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