Many individuals have no idea what the DSUE is. Well, it is a fairly simple term when you break it down. Every individual gets an exclusion amount for estate and gift taxes that is adjusted for inflation, last year is was $5,250,000. That means that on death, or during life, an individual can devise, bequeath, or gift up to that amount without generating any tax liability. (Gifts must be under the annual exclusion amount of $14,000 in order to not be subjected to a 40% tax). If you are married, you and your spouse can combine your exclusion amounts or, when one spouse passes away with some of their exclusion left, the other spouse may use that. This is called portability and the unused amount is called the deceased spouse’s unused exclusion (DSUE for short).
For example, imagine you and your spouse have used none of your exclusion amounts. Now, one spouse passes away and their estate is $2,250,000. The deceased spouse’s estate will not be subject to estate tax because they had an exclusion amount of $5,250,000 in 2013. Therefore, the spouse had $3,000,000 left after their estate was settled. If the surviving spouse, or their executor makes the election, they may use the remaining $3,000,000 from their deceased spouse’s estate in addition to their $5,250,000. This means they can exclude up to $8,250,000 from estate, gift, and generation skipping transfer tax. The DSUE is thus “portable.”
While no estate planner relies on portability (because the government can change the law at any time), it is definitely a useful tool for those with large enough estates to utilize it. In 2013, the government set forth legislation to make portability “permanent” for the foreseeable future.
For more on the DSUE and portability see this article: Lewis Saret, Estate Tax Portability – Date DSUE Amount May Be Taken Into Account, Forbes, Jan. 14, 2014.
Or, if you would like to speak with one of Maya Murphy’s experienced estate planners call 203-221-3100. The head of our estate planning division can also be reached by email at firstname.lastname@example.org