Although football season is over, it’s never a bad time for a football reference. When it comes to a players’ and teams’ long-term success, coaches often refer to a popular phrase that “the best ability is availability”. Well, for us tax accountants, we believe the best ability is portability!
Portability of Deceased Spousal Unused Exclusion (DSUE) is the ability to elect to transfer the remaining unused exemption (also known as “federal basic exclusion amount”) from a deceased spouse and add it to the surviving spouse’s current lifetime exemption. This election must be made on a timely filed Form 706, US Estate Tax Return, of the first deceased spouse. Even if the decedent’s estate is not required to file, a return must still be submitted timely to claim the portability election.
For reference, a decedent with a $5,000,000 estate passes away and has never used any of his/her lifetime exemption. The decedent’s will leaves the entire estate to the surviving spouse. If a timely filed Form 706 with a portability election is made, not only does the $5,000,000 go untaxed via the spousal deduction, the surviving spouse will get the benefit of the decedent’s unused exemption of $12,060,000 (2022 amount). If the surviving spouse has not used any of his/her lifetime exemption, the surviving spouse now has a total of $24,120,000 available to gift during life and/or use upon death.
As a rule of thumb, it is always important for the executor/trix to consider making the portability election for every decedent that has a surviving spouse. This simple election provides an opportunity to save a substantial amount of tax ($12,060,000 of exemption produces a tax savings of $4,769,800 for the decedent’s passing in 2022). Remember, it only takes a $2 Powerball or Mega Millions ticket to win a jackpot that can easily exceed the lifetime exemption, therefore, don’t punt on your tax planning and make sure to take advantage of this touchdown of a tax break.