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 firstname.lastname@example.org.
The material appearing in this communication is for informational purposes only and should not be construed as an opinion or legal, accounting, or tax advice provided by Nasif, Hicks, Harris & Co., LLP. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by professionals, the user should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented. Nasif, Hicks, Harris & Co., LLP assumes no obligations to provide notification of changes in tax laws or other factors that could affect the information provided. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. The user assumes all responsibility for the use of such information. Any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code or any taxing authority.