For the estate of a decedent dying after December 31, 2010 who is survived by a spouse, a portability election is available that allows the surviving spouse to apply the decedent’s unused estate tax exclusion to the surviving spouse. The deceased spousal unused exclusion (or “DSUE”) can only be applied to the surviving spouse by filing an estate tax return, Form 706, for the deceased spouse.
The Form 706 must be timely filed (including extensions). A portability election is made by filing an estate tax return and does not require an affirmative statement or box to check.
The surviving spouse’s basic exclusion amount, currently at $5 million, is combined with the deceased spouse’s unused exclusion amount (DSUEA). The new total exclusion amount for the surviving spouse can be used for lifetime taxable transfers (gifts) or at death. Please note that if a surviving spouse remarries, the DSUEA from the first spouse is lost.
Below is an example to understand the topic better.
After a prosperous life, Angelina dies in 2011. Angelina has made lifetime gifts of $2 million and has no taxable estate. The executor of Angelina's estate files Form 706 and elects to apply Angelina's deceased spousal unused exclusion amount (DSUEA) to Brad (the surviving spouse). Brad has made no taxable lifetime gifts. Brad's new applicable exclusion amount is $8 million ($5 million basic exclusion amount plus $3 million from Angelina's unused exclusion amount) which he can use against lifetime gifts in memory of his late wife or for transfers at his death.
There are many factors to consider before considering the portability election, including the traditional credit shelter trust and the unlimited marital deduction. Please discuss your estate plan with your tax preparer, keeping in mind that the current law is in effect through the end of 2012.
Melissa Hansen is a Certified Public Accountant at Nasif, Hicks, Harris & Co., LLP. Melissa can be reached via phone at (805) 963-5106 or e-mail at email@example.com.
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