Probate & Trust Law Section Conference Manual ... - Minnesota CLE

Amount has been computed correctly, this essentially means that everything on the first
deceased spouse’s estate tax return is up for grabs at any time until the death of the surviving
spouse. This could be one reason for an executor of the first spouse to die not to make the
portability election.
6. Lifetime Use of the DSUE Amount
The 2010 Act also amended the definition of the applicable credit amount for gift tax
purposes. Check out the new wording (in italics) in § 2505:
(a) General rule. In the case of a citizen or resident of the United States, there shall be
allowed as a credit against the tax imposed by section 2501 for each calendar year an
amount equal to—
(1) the applicable credit amount in effect under section 2010(c) which would
apply if the donor died as of the end of the calendar year, reduced by
(2) the sum of the amounts allowable as a credit to the individual under this
section for all preceding calendar periods.
So if a surviving spouse of a 2011 decedent whose executor timely filed an estate tax return
makes a taxable gift in 2012, for instance, the surviving spouse’s applicable exclusion amount
for federal gift tax purposes would be the same amount available to the surviving spouse’s
estate for estate tax purposes. The applicable exclusion amount would be the basic exclusion
amount plus the DSUE Amount. As the Joint Committee explains, this language makes clear
that “A surviving spouse may use the predeceased spousal carryover amount in addition to
such surviving spouse’s own $5 million exclusion for taxable transfers made during life or at
death.” 25
That’s right—a surviving spouse can use the DSUE Amount of his or her last deceased
spouse for gift tax purposes too. If one generally embraces the fundamental tenet that it is
better to make lifetime use of the applicable exclusion amount in order to shift future
appreciation out of one’s estate, then one should be quick to advise surviving spouse’s to make
use of the additional DSUE Amount through lifetime gifts.
A potential trap awaits a surviving spouse who fully utilizes the DSUE Amount of a
deceased spouse for gift tax purposes but then remarries a wealthier spouse who also
predeceases. If the wealthier spouse makes better use of the applicable exclusion amount, the
DSUE Amount will likely be reduced below the amount already utilized through inter vivos
gifting.Suppose, for example, that H died in 2011 with a taxable estate of $2 million. H was
survived by his spouse, W. H’s executor timely filed an estate tax return computing a DSUE
Amount of $3 million and elected to allow W to use the DSUE Amount. W then makes a $7
million gift after H’s death, but pays no tax because her applicable exclusion amount for gift tax
purposes is $8 million. After the gift, W marries H2. H2 then dies with a taxable estate of $4
25 Joint Committee Report, supra note 5, at 52 (emphasis added).
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