Deceased Spousal Unused Exemption (DSUE)

What is the DSUE? 

The Deceased Spousal Unused Exemption (DSUE) is a provision in the United States federal tax law that allows the surviving spouse to utilize any unused federal estate and gift tax exemption from their deceased spouse. This tax provision is part of the American Taxpayer Relief Act of 2012 and is often referred to as the “portability” of the estate tax exemption. 

The DSUE represents a significant tool in estate planning, providing surviving spouses with greater flexibility and the potential to transfer wealth more efficiently. By allowing the transfer of unused estate and gift tax exemptions between spouses, the DSUE simplifies estate planning and can offer substantial tax savings for the families involved.

Prior to the enactment of portability rules, couples had to engage in complex estate planning strategies, such as creating bypass trusts, to ensure that they could take full advantage of each spouse’s federal estate and gift tax exemption. With the introduction of DSUE, the IRS provided a more straightforward mechanism for transferring unused exemption amounts.

Limitations and considerations of the DSUE

It’s important to note that the DSUE is applicable only to the federal estate and gift taxes and does not affect state estate or inheritance taxes, which may have different rules and exemptions. Furthermore, the DSUE can only be applied to the last deceased spouse, meaning if the surviving spouse remarries and outlives another spouse, only the unused exemption of the last deceased spouse can be used.

The DSUE also underscores the need for timely and accurate estate planning and administration. Failure to file an estate tax return to elect portability within the prescribed deadline, which can be extended under certain circumstances, may result in the forfeiture of the DSUE benefit.