Some estates may go back to claim portability exclusion

Many California residents may be either unaware of or confused by the spousal portability exclusion passed into law in 2011. The law allows a surviving spouse to elect to use any unused portion of their decedent spouse's estate tax exemption to save later to use in combination with their own when they pass away.

Claiming the exclusion, called the DSUE, has the potential to save many thousands of dollars in taxes. Unlike the estate tax exemption, however, the DSUE is not adjusted for inflation. Still, allowing surviving spouses to use it later in combination with their own may help their beneficiaries avoid significant taxes.

As many people have been very confused by the new law, a number have missed out on this important election. The IRS will now allow those who missed filing for the DSUE within the 15-month window to go back and claim it if their spouse's estate did not exceed the federal exemption amount. Only the estate's executor is able to elect the DSUE, a continuing issue. For estates that exceed the exemption amount, going back is much more difficult. Per the IRS's rules, the only way in which a spouse may elect the portability option is to have the executor file the estate tax return upon the first spouse's death.

Portability of the exclusion amount is one area of estate planning that is often overlooked or not understood. People may want to consult with their estate planning attorney to make certain that the future executor of their estate knows to elect the exclusion. By doing so, they may potentially save a lot of money in future taxes. Additionally, an estate planning attorney may be able to advise their clients on other tax reduction methods they can use through taking advantage of a variety of tools.


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