PORTABILITY OF A DECEASED SPOUSE’S ESTATE TAX EXEMPTION EXPLAINED.

Estates of decedents who died from January 1, 2011 through December 31, 2012 may elect to transfer any unused exclusion to the surviving spouse. The amount received by the surviving spouse is called the deceased spousal unused exclusion (DSUE) amount. Making this election can have a profound effect on the taxation of the estate of the surviving spouse.

With the 2001 and 2010 tax acts, Congress increased the estate tax exemption. However, unless Congress acts prior to December 31, 2012, the exemption will return to $1,000,000 in 2013. In addition, the highest marginal estate tax rate will increase from 35% to 55%. If Congress fails to act and allows the exemption to revert to $1,000,000, the unused exemption passed from a decedent to his or her spouse via the “Portability Election” amount can result in very large estate tax savings.

A surviving spouse can apply the unused exclusion amount received from the estate of his or her last deceased spouse against any tax liability arising from subsequent lifetime gifts and transfers at death.

Making the Election – To make the portability election, a timely filed estate tax return must be filed, even if the estate would not otherwise be required to file an estate tax return. Failure to file the estate tax return will result in the loss of the portability of the spouse’s unused exclusion amount. A timely filed return is one that is filed on or before the due date of the return, including extensions.

If you believe that the election to transfer any unused exclusion to a surviving spouse applies to you, family members, or friends and would like additional information, please give this office a call.