What Is the Deceased Spousal Unused Exclusion Amount?

The Deceased Spousal Unused Exclusion (DSUE) is a federal tax provision that allows a surviving spouse to use the portion of their deceased spouse’s estate and gift tax exemption that was not used. This concept, often called “portability,” was introduced by the Tax Relief Act of 2010 and made permanent in 2012. It permits the surviving spouse to add the decedent’s unused exclusion to their own, increasing the amount of assets they can transfer to heirs without federal estate or gift tax.

Each U.S. citizen has a lifetime exemption for assets given away during life or at death. If a deceased spouse’s assets and lifetime taxable gifts do not use their full exemption, the unused portion can be transferred to the surviving spouse. This mechanism simplifies estate planning for married couples by providing a more direct way to utilize both exemptions.

This provision applies only to federal taxes and does not extend to any state-level estate or inheritance taxes, which operate under their own distinct rules. Before portability, any unused portion of a spouse’s federal exemption was permanently lost upon their death, often requiring complex trust arrangements to maximize tax benefits.

Eligibility and Calculating the DSUE Amount

To be eligible to use the Deceased Spousal Unused Exclusion (DSUE) amount, certain requirements must be met. The deceased spouse must have been a U.S. citizen or resident at the time of death. Similarly, the surviving spouse must also be a U.S. citizen or resident to benefit from the portability of the DSUE amount.

The DSUE amount is calculated starting with the basic exclusion amount for the year the first spouse died. From this, subtract the value of the deceased’s taxable estate and any lifetime taxable gifts that used part of their exclusion. The result is the DSUE amount available to the surviving spouse.

For example, if the basic exclusion amount is $13.99 million in the year of a spouse’s death, and the deceased had a $3 million taxable estate and made $1 million in lifetime taxable gifts, their total use of the exclusion is $4 million. The available DSUE amount would be $13.99 million minus the $4 million used, leaving $9.99 million for the surviving spouse.

The exclusion amount is subject to change. Under current law, the higher exemption levels are set to expire at the end of 2025. On January 1, 2026, the exclusion is scheduled to revert to its pre-2018 level, projected to be about $7 million per individual after inflation adjustments.

The Portability Election Process

Securing the DSUE is not automatic and requires the executor of the deceased’s estate to make a portability election. This is done by filing a U.S. Estate Tax Return, Form 706, to compute the DSUE amount, even if the estate is below the normal filing threshold.

To complete Form 706, the executor must gather comprehensive financial documentation. This includes a detailed inventory and valuation of all the deceased spouse’s assets, such as real estate, bank accounts, and investment portfolios. A record of all lifetime taxable gifts made by the decedent is also necessary, along with the deceased’s personal information.

The deadline to file Form 706 for portability is nine months after the spouse’s death. A six-month extension can be requested by filing Form 4768, extending the deadline to 15 months. This extension is for filing the return, not for any tax payment that might be due.

For estates not otherwise required to file, the IRS provides an extension to elect portability for up to five years after the decedent’s death under Revenue Procedure 2022-32. This is initiated by filing a complete Form 706 with a notation at the top stating it is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”

Application of the DSUE Amount by the Surviving Spouse

Once the portability election is made, the surviving spouse can use the DSUE amount for two primary purposes. The first is to offset the tax on their own lifetime gifts. If the surviving spouse makes taxable gifts that exceed their annual gift exclusion amount, they can apply the DSUE to shelter these gifts from federal gift tax.

The second use of the DSUE amount is at the time of the surviving spouse’s own death. The DSUE amount is added to the surviving spouse’s personal basic exclusion amount. This combined total can shield their estate from federal estate tax, allowing a larger value of assets to pass to their heirs tax-free.

A regulation governs the order in which exemptions must be used. When making a taxable gift, a surviving spouse must use the DSUE amount first, before applying their own basic exclusion amount. For instance, if a survivor has a $5 million DSUE and their own $13.99 million exclusion, a $3 million taxable gift would use $3 million of the DSUE, leaving $2 million of the DSUE and the full personal exclusion.

Impact of Remarriage on the DSUE Amount

A surviving spouse’s remarriage introduces specific rules that can affect the availability of the DSUE amount. While remarrying does not cause a loss of the DSUE from a first deceased spouse, a subsequent event can. The determining factor is the “last deceased spouse” rule, an important consideration for individuals who remarry.

This rule dictates that a surviving spouse may only use the DSUE from their most recently deceased spouse. If a surviving spouse with a DSUE amount remarries and their new spouse also dies, the DSUE from the first spouse is lost. The survivor can then only use the DSUE, if any, from the second deceased spouse, provided a portability election is made for that spouse’s estate.

For example, a widow has a $4 million DSUE from her first husband. She remarries, and her second husband later dies, leaving no unused exclusion. Upon the death of her second husband, he becomes her “last deceased spouse,” and she loses the $4 million DSUE. This rule highlights the importance of strategic gifting, as the widow could have used the DSUE before her second husband’s death.