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

decedent, which together is the amount on which the
tentative tax on the decedent’s estate is determined
under section 2001(b)(1).
(2) Special rule to consider gift taxes paid by decedent. Solely
for purposes of computing the decedent’s DSUE amount, the
amount of the adjusted taxable gifts of the decedent referred to
in paragraph (c)(1)(ii)(B) of this section is reduced by the
amount, if any, on which gift taxes were paid for the calendar
year of the gift(s).”
1. Example 1. H1 and W are married. H1 dies in 2013 leaving $3,000,000 in
taxable gifts and the rest of the estate to W. Applying the regulations, H1’s
DSUE is $2,250,000. That is because the DSUE is the lesser of (1) the
Basic Exclusion Amount ($5,250,000) or (2) the Applicable Exclusion
Amount ($5,250,000 + a last deceased spouse DSUE, none in this case) –
the taxable estate ($3,000,000) = $2,250,000;
Answer: $2,250,000
2. Example 2. H1 and W are married. H1 made $3,000,000 worth of gifts in
2003 when the exclusion amount was only $1,000,000, so he paid tax on
$2,000,000 worth of gifts. H1 dies in 2013 and devises the entire estate to
W. What is H1’s DSUE? It is $4,250,000 computed as the lesser of:
(1) The Basic Exclusion Amount, $5,250,000, and
(2) The Applicable Exclusion Amount ($5,250,000 + a last deceased
spouse DSUE, none in this case) – the taxable estate ($1,000,000 from
prior gifts) = $4,250,000;
Answer: $4,250,000
It is important to note Temp. Reg. § 20.2010-2T(c)(2) which provides that
“adjusted taxable gifts” in Temp. Reg. § 20.2010-2T(c)(1) is reduced to
the extent gift taxes were paid on the prior gifts. Since H1 paid gift taxes
on the $2,000,000 taxable portion of the transfers in 2003 those transfers
are not considered when calculating the DSUE.
3. Example 3. H1 and W1 are married. W1 dies in 2012 leaving H1 a DSUE
of $3,000,000. H1 marries W2. H1 then dies in 2013. What is H1’s
DSUE? It is the lesser of:
(1) The Basic Exclusion Amount, $5,250,000, and
(2) The Applicable Exclusion Amount ($5,250,000 + a last deceased
spouse DSUE, in this case $3,000,000) – the taxable estate 0 =
$8,000,000;
Answer: $5,250,000
4. Example 4. Computation of DSUE amount. (i) Facts. In 2002, having
made no prior taxable gift, Husband (H) makes a taxable gift valued at
$1,000,000 and reports the gift on a timely-filed gift tax return. Because
the amount of the gift is equal to the applicable exclusion amount for that
year ($1,000,000), $345,800 is allowed as a credit against the tax,
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