In the 2010 Tax Act, the concept of portability of the unused transfer tax exemption was first introduced in the tax law. Under the 2010 Tax Act, the unused estate tax exemption could be ported over to the surviving spouse. However the 2010 Tax Act sunset on December 31, 2012, and to benefit from this, the surviving spouse needed to die before New Year’s Day, 2013. Not an ideal estate planning technique.
The American Taxpayer Relief Act of 2012 has made the concept of portability of the unused transfer tax exemption permanent. Unused exemption as of the death of a spouse is available for use by the surviving spouse. This is now referred to as the “Decease Spousal Unused Exemption Amount.” The acronym for this is DSUEA. It is more polite to refer to this as the “portability election.” The unused exemption may be used by the surviving spouse for both gift and estate tax purposes in addition to the surviving spouse’s own exemption.
The surviving spouse must elect to capture the DSUEA. This is done by filing an U.S. Estate Tax Return, IRS Form 706. Because this election is so valuable, a surviving spouse may decide to file an Estate Tax Return even if no estate tax return was required. To clarify, if the filing requirements for an Estate Tax Return are not met, the surviving spouse may nevertheless wish to make the election to capture the DSUEA.
The DSUEA is very valuable. A surviving spouse should discuss this with the surviving spouse’s accountant and attorney.