Even if your Estate is Less than the Current Lifetime Exclusion, you may benefit from filing an Estate Tax Return (Form 706) when your Spouse Dies.
As of 2023, the following are the current estate and gift tax exclusion amounts (keep in mind these rules are constantly being changed by Congress):
Annual exclusion: $17,000 per donee (recipient of the gift)
Lifetime exclusion: $12.92 million per individual ($25.84 million for a married couple)
The annual exclusion allows you to give any number of individuals up to $17,000 per year without using any of your lifetime exclusion. This means that a married couple can give away a total of $34,000 in 2023 tax-free to each gift recipient.
The lifetime exclusion is the total amount you can give away during your lifetime plus the amount of your estate assets at death without owing any estate or gift taxes. This amount is adjusted annually for inflation.
It is important to note that these exclusion amounts are temporary and will revert to their pre-2018 levels in 2026 unless modified by Congress. In 2026, the annual exclusion will be $5,000 per donee and the lifetime exclusion will be $5 million per individual ($10 million for a married couple).
If you are considering making any significant gifts, it is important to speak with an estate planning attorney or tax accountant to discuss your options and make sure you are taking advantage of all of the available tax benefits.
When Should I Consider Filing a Form 706
Form 706 is the United States federal form for reporting an estate tax or gift tax. It is filed with the Internal Revenue Service (IRS) by the estate's executor. The form is due nine months after the date of the decedent's death.
You are not required to file Form 706 if the following conditions are met:
The decedent was a U.S. citizen or resident.
The gross estate of the decedent, increased by the decedent's adjusted taxable gifts and specific gift tax exemption, is valued at less than the filing threshold for the year of the decedent's death.
The estate is not electing to transfer any Deceased Spousal Unused Exclusion (DSUE) amount to a surviving spouse.
Why Should I elect to transfer the Deceased Spousal Unused Exclusion (DSUE) amount to a surviving spouse
The Deceased Spousal Unused Exclusion (DSUE) is a federal estate tax provision that allows a surviving spouse to ADD any unused portion of their deceased spouse's estate tax exemption to the survivor’s own exemption amount. This can be a valuable tool for estate planning, as it can help to reduce the overall estate tax liability on the death of the surviving spouse.
Here’s an example
John and Mary are a married couple. John dies in 2023 with an estate worth $10 million. At the time of John's death, the estate tax exemption is $12.92 million. This means that John's estate owes no federal estate tax.
John and Mary had not made any taxable gifts during their lifetimes. Therefore, John's executor elects portability of John's DSUE amount. The DSUE amount is the amount of the exemption that John did not use during his lifetime. In this case, the DSUE amount is $2.92 million ($12.92 million exemption minus $10 million estate value).
Mary survives John. In 2025, Mary dies with an estate worth $15 million. At the time of Mary's death, let’s say the estate tax exemption is $13.5 million. However, Mary is able to add John's DSUE amount of $2.92 million to her own exemption. This means that Mary's estate has a total exemption of $16.42 million ($13.5 million exemption plus $2.92 million DSUE amount).
Because Mary's estate is worth more than her total exemption, Mary's estate owes no federal estate tax ($15 million estate vs. $16.42 million exemption).
If an estate is electing to transfer any DSUE amount to a surviving spouse, then the estate must file Form 706 regardless of the size of the gross estate or amount of adjusted taxable gifts. The election to transfer a DSUE amount to a surviving spouse is known as the portability election.
How to elect portability of the Deceased Spousal Unused Exclusion (DSUE) amount to benefit the surviving spouse
To elect portability of the DSUE amount, the surviving spouse must file a timely and complete federal estate tax return (Form 706). The return must be filed within nine months of the deceased spouse's date of death, or within 15 months if an extension is granted.
Disclaimer
The information provided in this article is for informational purposes only and does not constitute legal or tax advice. Please consult with a qualified CPA, tax attorney, or trust attorney to discuss your specific situation.
The tax laws are complex and constantly changing, and it is important to get personalized advice from a qualified professional to ensure that you are compliant with all applicable laws and regulations.
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