WHAT THE LAST SURVIVING SPOUSE RULE MEALS FOR ESTATE TAXES

Estate planning is especially important for married couples. Many people choose to have these documents created to minimize and avoid estate taxes. When left unchecked, estate taxes can substantially reduce the amount of inheritance that's left for your loved ones.

What Are Gift and Estate Taxes?

In 2024, there is a $13.61 million federal exemption per person for gifts and estate taxes. This means many individuals with a high net worth will not owe federal estate tax if they die in 2024. An individual can give away up to $13.61 million in 2024 to children or other non-spouse beneficiaries during their lifetime or after their death. They will pay 40 percent in estate taxes only on gifts that exceed that amount.

You may believe you or your spouse will never have over $27.22 million combined, but the current exemption amount is historically high. It will revert to the pre-2017 amount—$5 million adjusted for inflation—on January 1, 2026, if Congress does not act.

That means the 40% estate tax could apply to gifts over approximately $6.4 million come 2026. Many families with high net worth will need to reevaluate their estate plans and adjust strategies to preserve their property and investments. One strategy is to take advantage of the deceased spousal unused exclusion amount (DSUEA) if they pass away before 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. 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. When the first spouse dies, the other can elect to port their spouse’s unused exemption within five years of the spouse’s death and add the unused exemption to their own. To make the DSUEA, a representative of the decedent's estate, usually 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. If you have more than one predeceased spouse, you can use the DSUEA of multiple spouses. However, 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. Bob and Sue were married with jointly titled property and a net worth of $16 million. Bob died first in 2020 with a federal estate tax exemption of $11.58 million. Sue inherited all of Bob’s property, and because of the unlimited marital deduction, none of Bob’s exemption was used. Sue elected portability by filing an estate tax return on time and was able to add Bob’s $11.58 million to her own exemption of $12.92 million. Sue gets remarried to Dan in 2021. Dan dies in 2022, and after an estate tax return is filed, he has a DSUEA of $6 million. Sue then died in 2023 with an estate worth $16 million. At her death, she has her estate tax exclusion amount of $12.92 million and Dan’s $6 million since he was her last predeceased spouse.

Sue may be able to make gifts over the annual exclusion amount ($17,000 in 2024) during her lifetime while Bob was her last predeceased spouse (before Dan dies) and use Bob’s DSUEA to prevent having to pay gift tax on the large lifetime gifts. As soon as Dan dies, however, he becomes her last predeceased spouse and she will no longer be able to use Bob’s DSUEA.

Get Professional Tax Planning and Estate Planning Advice from Our Attorneys

We understand that trying to navigate estate tax rules can be a daunting task. We are here to assist you in better understanding your options 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 at 614-389-9711.

About the Author - Gregory S. DuPont, JD, CFP

Greg has been serving clients as an estate and tax planning attorney in Ohio since graduating from Capital University Law School in 1992. He obtained an accounting and finance degree from The Ohio State University. As a Certified Financial Planner, a designation that requires advanced coursework in a complete range of financial subjects, he is a rare financial professional who can provide cross-disciplinary solutions from the legal, tax and investment perspectives.

Greg is the co-author of the book: Protecting Your Future with Tax-Free Long-Term Care, and is a contributing author in Jack Canfield's best selling book The Recipe for Success.

He has been named one of Ohio's Top 100 lawyers, an invitation-only designation given by The National Advocates.