Many people want to know how to avoid paying federal estate taxes upon the death of a spouse. The “DSUE” is one of the means by which we can either completely eliminate or at least lessen a person’s federal estate tax liability.
A deceased spouse’s estate can transfer any unused federal state tax exclusion for gift or estate taxes to their surviving spouse. This is called the “Deceased Spousal Unused Exclusion” (DSUE) or “portability election”. In the estate planning and taxation worlds, we pronounce it “deh-soo”.
In 2022, the amount of each person’s exclusion was $12,060,000, making a married couple’s total exclusion $24,120,000. In 2023 it is $12,920,000, which makes a married couple’s exclusion $25,840,000. In January 2026, this exclusion is set to go back down to the $5,000,000-$7,000,000 range unless Congress changes the laws to extend this benefit to a larger amount.
The DSUE is meant to benefit the surviving spouse. Any unused exclusion amount (by a deceased spouse) can be transferred/ported over to the surviving spouse, assuming they file the correct returns with the IRS. This DSUE amount is available if the deceased spouse’s estate did not use all of the exclusion.
To use the DSUE, an estate tax return (Form 706) must be filed within 9 months after the decedent’s date of death. On the return is a portability election. You actually have to check a box to elect out of it (Part 6, Section A). By default, the portability election is available without selecting anything. An extension of up to six months can be filed using Form 4768, but it must be filed on or before the estate tax return due date or you will lose this benefit.
It’s crucial to file the estate tax return. Otherwise, the DSUE will be lost and potentially millions of dollars of taxes will be owed.
How this works (an example): Say the exclusion amount is $12,060,000 when the 1st spouse dies. If the deceased person’s estate was worth $5,000,000, they would use $5,000,000 of their exclusion to not have to pay any federal estate taxes. That leaves them with an unused amount of $12,060,000-$5,000,000=$7,060,000. This $7,060,000 is available to the surviving spouse to add to their exclusion amount, assuming they file the tax return for the estate in a timely fashion. Let’s say that the surviving spouse has an exclusion amount of $12,920,000. If we add the DSUE of $7,060,000 to the $12,920,000, that gives the surviving spouse a federal tax exclusion amount of $19,980,000. The gross value of her estate would have to exceed that new amount before there would be any federal estate tax liability.
If you need help with your estate planning or the tax returns associated with a deceased person’s estate, please reach out to us. We’d be happy to assist you. You may start by completing our INTAKE FORM or by calling our office at (865) 233-3353. We are licensed to practice in Tennessee, Florida, and New York.
© Leigh Cowden, Vermillion Law