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

G. Computing the DSUE Amount. The DSUE amount must be computed on a
properly filed return. See Section II herein.
II.
COMPUTING THE DUE AMOUNT. The Deceased Spousal Unused Exclusion
(DSUE) is confusing if you just read Code § 2010(c)(4), but if you read the regulations,
the regulations clarify the computation.
A. Definitions.
1. Applicable Exclusion Amount: is the Basic Exclusion Amount
($5,250,000) plus the DSUE. Code § 2010(c)(2); Temp. Reg. § 20.2010-
1T(d)(2).
2. Basic Exclusion Amount is the $5,000,000 indexed for inflation. Code §
2010(c)(3)(A)/(B); Temp. Reg. § 20.2010-1T(d)(3)(i).
3. DSUE: The Code § 2010(c)(4)(B) definition is different from the
Temporary regulations. The Regulations provide the clearer definition.
The regulations break Code § 2010(c)(4)(B)(ii) into 2 additional subparts
to account for gift taxes paid on prior gifts made by the decedent. Under
the regulations the decedent gets credit for paying taxes on prior gifts. The
Code provision does not clearly explain that the gifts that were subject to
gift taxes paid do not reduce the amount of exclusion that may pass to the
surviving spouse. In simple terms, if Decedent made gifts of $3,000,000 of
gifts in a year when the gift exclusion amount was only $1,000,000, the
question arises whether the $2,000,000 portion of the gift (which Decedent
properly paid gifts taxes on when made) reduce the exclusion amount. In
other words, is the DSUE to the surviving spouse $4,000,000 ($5,000,000-
$1,000,000) or is it $2,000,000 ($5,000,000-$3,000,000)? The quick
answer is that the regulations clearly provide that the DSUE amount is
$4,000,000 (that answer is not as clear if you read Code §
2010(c)(4)(B)(ii)). The regulations answer the ambiguity raised by the
now famous Example 3 of the Joint Committee on Taxation report that
first discussed this issue.
B. Calculation of the DSUE. Under the Regulations (Temp. Reg. § 20.2010-2T(c)):
“(c) Computation of the DSUE amount—(1) General rule. Subject to paragraphs
(c)(2) through (c)(4) of this section, the DSUE amount of a decedent with a
surviving spouse is the lesser of the following amounts—
(1) The basic exclusion amount in effect in the year of the
death of the decedent; or
(ii) The excess of—
(A) The decedent’s applicable exclusion amount;
over
(B) The sum of the amount of the taxable estate and
the amount of the adjusted taxable gifts of the
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