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Estate Planning: Deceased Spouse's Unused Exemption Amount

October 14, 2022

Losing a spouse is one of the most difficult times in one’s life. Financial planning can either be the last thing the surviving spouse wants to think about or is an immediate stressor, disturbing the grieving process. 

An often overlooked task when a significant other passes, is the portability of unused estate tax exemption election. Today, we will dive into the Deceased Spouse’s Unused Exemption Amount (DSUEA), and the recent changes the IRS had made to this rule.

What is an Estate? 

An estate is anything of value (or worth) that an individual has. This can include retirement accounts, stocks, bonds, property, land, cash, jewelry, art, crypto, cards, etc. This is all your “stuff”. The goal throughout one’s life may be to grow their estate as much as possible with the idea of living off the appreciation in retirement, then passing on to the next generation(s).  

What Happens to my Estate When I Die? 

When an individual passes, their assets are passed to whomever is named as beneficiary. Each account may have its own specific beneficiary, or everything in an estate could flow through a trust. This leads us to the conversation of estate planning, which we will discuss in future blogs. Right now, we simply want to know that all a deceased individual’s “stuff” must go to whomever is listed as beneficiaries (ALWAYS CHECK YOU BENEFICIARY INFORMATION ON ALL ACCOUNTS). Majority of the time with a married couple, the beneficiary is the other spouse.

I am sure you have heard the saying, there are only two things certain in life: death and taxes. This saying could apply to your estate. If you add up the value of a deceased individual’s estate, and the amount comes out over $12,060,000 (for 2022), an estate tax will be owed. If the couple dies at the same time, the exemption doubles and raises to $24,120,000. Only the amount over the estate tax exemption limit ($12,060,000 for an individual) is taxed. So if an individual passes with an estate of $20,000,000, then taxes are owed on $7,940,000. Here’s the big kicker: that amount owed could be taxed up to 40% and due within 9 months of the individual passing. This is why estate planning is so essential.

That’s Not Me…for Now (potentially) 

The current tax laws are set to sunset in 2026. This means that if nothing is done to the tax code, they will revert back to pre-2017 limits. A popular saying is, “always write down the tax laws with a pencil, and never a pen”. With any type of tax change, the estate tax is always discussed. There is a good possibility that the estate tax exemption level could be lower…much lower. Numbers are always thrown around, but it wasn’t long ago that an exemption limit of $3 million was talked about. Now in that case, this may be for you.

If no laws are changed, and tax laws revert to pre-2017 levels, the exemption limit could adjust to $5 million (roughly). For historical context, see the chart below to view what the exemption limits have been in the past for individuals. The chart lists the year, estate tax exemption limit, and the percentage amount of the estate tax. 

Image taken from

That’s All Great, but how does that tie into DSUEA? 

The IRS recently made a change to when the surviving spouse can claim any unused estate exemption. In the past the surviving spouse had up to two years, but now a widow can claim the unused exemptions up to to five years after a loved one passes. This means that any unused tax exemption amount is transferable, or “portable”, to the surviving spouse and once elected is permanent for future use.  This is known as “electing portability” on the DSUEA. 

Look at the example below: 

Louise Lane is married to Clark Kent. Louise passed away in 2021 with an estate value of $3 million. This is below the current estate tax required for filing, so typically form 706 is not filled out. However, if portability (claiming the unused estate exemption from Louise) was elected, Clark can now use the full $12,060,000 exemption that Louise never used whenever he passes away. Even if the exemption levels decrease in the future he still gets to utilize the full amount of estate exemption at the time of Louise’s passing.  

In our example, assume that  the $3 million in assets went directly to Clark. Clark utilized the portability of the unused estate tax exemption, and then passed away in 2028. Clark did not remarry, no changes were made to the laws, and he didn’t gift away any of his assets. When Clark passes in 2028, his estate is now worth $9 million (the amount of Louise’s assets combined with his own).  We are assuming the estate exemption has gone back down to $5 million since no laws were changed. Since Clark doesn’t get double the exemption because he is no longer married (“The Widows Penalty” with the IRS which we will discuss in other blogs), he is now over the exemption level of $5 million. Clark is now over the estate exemption and would have to pay an estate tax on roughly $4 million dollars. But, because he elected portability on Louise’s unused estate tax exemption, he has her $12,060,000 that can now be used to increase his exemption level to $17,060,000 ($5,000,000 + $12,060,000). Clark’s estate is now below his total exemption number and avoids the estate tax, which could have been up to 40%. Please keep in mind, there may be taxes owed on individual assets in his estate, but will not be subject to the IRS estate tax. 

Here are the rules for portability of DSUEA

Under Section 2010(c)(5)(A), executors of a decedent’s estate may elect for portability of the DSUEA to a surviving spouse if they meet the following conditions:

  • The decedent passed away after December 31, 2010
  • Under Section 6018(a), the decedent was not required to file an estate tax return because the value of the gross estate and adjusted taxable gifts was under the filing threshold
  • On the date of death, the decedent was a citizen or resident of the United States

Under prior guidance, surviving spouses had to elect portability within two years of their spouse’s death, but this new ruling extends the deadline to five years.

Additionally, within the five-year window, you are no longer required to request a private letter ruling from the IRS. Instead, you can elect portability of the unused estate tax exemption by filing an estate tax return.

Form 706

The way to transfer an unused estate tax exemption? Use Form 706. This can be obtained through your CPA or tax consulting firm. We highly recommend working with a professional when it comes to filing these types of forms. Form 706 is lengthy and can be complicated to fill out on your own. It can also be costly to file the form if there are many assets to account for. It is important to determine if this is in your best interest before filing any forms. 

Final Thoughts

With today’s exemption limits, most individuals will not have to worry about an estate tax. But, with this number always changing, and as of now is set to be reduced in 2026, this could be a simple action to help avoid estate taxes in the future. 

This strategy is not for everyone, especially those looking for “Generational Wealth Skipping”, and each estate plan is different. If you’ve lost a spouse, and your advisor hasn’t discussed this with you, give us a call at EWA. There still may be time for us to obtain this portability exemption.

Please always speak with a financial advisor, tax attorney, and estate attorney before making any financial planning decisions. This blog is not intended to be used for any financial or tax advice and is intended for educational purposes only.