The Deceased Spousal Unused Exclusion Amount
Effective financial management, particularly for married couples, includes a crucial component: estate planning. A critical factor in this process is reducing estate taxes, as taxes can significantly impact the allocation of money and property to loved ones. Planning could involve utilizing the deceased spousal unused exclusion amount.
What Are Gift and Estate Taxes?
In 2024, individuals won’t owe federal estate tax on amounts up to $13.61 million. A person can gift this amount during their lifetime or after death to children or non-spouse beneficiaries. Estate taxes of 40 percent apply only to gifts beyond $13.61 million.
You may believe you’re in the clear because your combined assets with your spouse won’t exceed $27.22 million. However, if Congress doesn’t take action, the current exclusion will revert to $5 million on January 1, 2026. Consequently, by 2026, many families may need to reassess their estate plans and modify legal strategies to safeguard their property and investments. Planning could involve utilizing the deceased spousal unused exclusion amount (DSUEA) if they pass away before January 1, 2026.
The DSUEA serves to boost the estate tax exemption for the surviving spouse. Following the first spouse’s death, the surviving spouse can choose to port their deceased spouse’s unused exemption within five years and incorporate it into their own. To make the DSUEA accessible for the surviving spouse, a representative of the decedent’s estate must submit a federal estate tax return (Form 706) to report the DSUEA. Importantly, the DSUEA is subject to specific rules and deadlines, so proper estate planning and timely filing of required forms are crucial for taking advantage of this provision.
Widows and Widowers Cannot Collect Estate Tax Exclusions
Widows or widowers who have been married before can use the DSUEA of their last deceased spouse to offset the tax on any transfer during their life or at death. If they have more than one predeceased spouse, they can use the DSUEA of multiple spouses. However, the decedent whose DSUEA is being used must be the survivor’s last predeceased spouse. 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.
Tax Planning Can Get Tricky
Navigating tax rules can be overwhelming. Our team is here to help you understand your options and create a tailored estate and financial plan that suits your unique situation. Contact us today to explore strategies for safeguarding yourself, your loved ones, and your life savings.