Estate planning can be a significant part of successful financial management, especially for married couples. One key consideration is minimizing estate taxes and maximizing the amount that can be distributed to loved ones.

What Are Gift and Estate Taxes?
For individuals who pass away in 2024, there is a $13.61 million federal exemption for gifts and estate taxes. With this large exemption, many individuals with a high net worth will not owe federal estate tax if they die in 2024. Up to $13.61 million in assets can be given away during lifetime or after death, without any transfer tax being owed. There is a 40 percent estate tax only on gifts that exceed that amount.

While you may believe you or your spouse will never have more than $27.22 million in combined assets, be aware that the current exemption will revert to the pre-2017 amount—$5 million adjusted for inflation—on January 1, 2026, if Congress does not act.

With the lower exemption amount, the 40 percent estate tax rate could apply to gifts over approximately $6.4 million come 2026. Families with high net worth should reevaluate their estate plan and adjust legal strategies to preserve and protect more of their property and investments. One option to consider is taking advantage of the deceased spousal unused exclusion amount (DSUEA) if they pass away prior to January 1, 2026.

What Is the Deceased Spousal Unused Exclusion Amount?
The Tax Relief Act of 2010 introduced the concept of portability—the ability of a surviving spouse to use their deceased spouse’s unused exclusion amount—and made it permanent in 2013. Before then, if a person died with wealth below the federal estate tax exemption amount and did not use their exemption, it was lost forever.

Today, the DSUEA can be used to increase the estate tax exemption for the surviving spouse. Within five years of the first spouse’s death, the other can elect to port their spouse’s unused exemption and add the unused exemption to their own. To have the DSUEA available for the surviving spouse to use, a representative of the decedent’s estate, possibly the spouse, must file a federal estate tax return (Form 706) to report the DSUEA.

Widows and Widowers Cannot Collect Estate Tax Exclusions
If you are a widow or widower who has been married before, the portability rule lets you use the DSUEA of your last deceased spouse to offset the tax on any transfer during your life or at death. If you have more than one predeceased spouse, you can use the DSUEA of multiple spouses, but the decedent whose DSUEA is being used must be the survivor’s last predeceased spouse when their DSUEA is being used. A surviving spouse may not use the sum of DSUEA from multiple predeceased spouses at one time or apply the DSUEA after the death of a subsequent spouse.

How It Works
Portability can make a significant difference when it comes to the taxation of an estate.
Remarriage with Second Spouse Dying
Example. Ted and Diane were married, owned jointly titled property, and had a net worth of $16 million. Ted died in 2020 when the federal estate tax exemption was $11.58 million. Diane inherited all of Ted’s property, and because of the unlimited marital deduction, none of Ted’s exemption was used. Diane elected portability by filing an estate tax return on time and was able to add Ted’s $11.58 million exemption to her own. In 2021 Diane married Norm. Norm died in 2022, and after an estate tax return was filed, he had a DSUEA of $6 million. Diane then died in 2023 with an estate worth $16 million. At her death, she had her estate tax exclusion amount of $12.92 million and Norm’s $6 million, since he was her last predeceased spouse.

If Diane had a larger estate or had wanted to make gifts during her lifetime, she may have been able to make large lifetime gifts over the annual exclusion amount ($17,000 in 2024) during her lifetime while Ted was her last predeceased spouse (before Norm died) and used Ted’s DSUEA to prevent having to pay gift tax on the large lifetime gifts. As soon as Norm died, however, he became her last predeceased spouse and she was no longer be able to use Ted’s DSUEA.

Tax Planning Can Get Tricky
Trying to navigate the tax rules can be a daunting task. We are here to assist you in better understanding the options available to you and crafting the best estate and financial plan to meet your unique situation. To learn more about strategies to protect yourself, your loved ones, and your life savings, give us a call.