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

of the surviving spouse’s death. Temp. Reg. § 20.2010-1T(d)(5), 3T(a),
3T(c).
a. Example 1. H1 and W are married and H1 dies in 2012 leaving W
a DSUE of $5,120,000. W now has a total Applicable Exclusion
Amount of $10,370,000 when W dies. This amount can go up to
the extent W’s exemption amount increases due to inflation but the
DSUE amount does not increase with inflation.
b. Example 2. Same facts as Example 1, except W gets married to
H2. Unfortunately H2 used up his $5,120,000 exemption with gifts
in 2012 so his only remaining exemption is $130,000. If H2 dies in
2013 before W, then H2’s DSUE is given to W and H2 is the Last
Deceased Spouse. Now, W only has an Applicable Exclusion
Amount of $5,380,000.
2. Intervivos Transfers. In the case of lifetime gifts, the last deceased spouse
is determined at the time of the gift. Temp. Reg. § 20.2010-2T(a) and (c)
and 3T(b). This in concept allows for the Black Widow Rule.
a. Example 1. H1 dies in 2011. W receives H1’s DSUE of
$5,000,000. W makes $5,000,000 of gifts in 2011. W still has her
entire $5,250,000 exemption in 2013.
b. Example 2. Same facts as example 1, but now W marries H2 in
2012. H2 dies in 2012 and leaves a $4,000,000 DSUE. W then
makes gifts of $5,120,000 in 2012. W still has $4,000,000 of her
exemption left.
c. Example 3. Same facts as example 1. W marries H2 who has
$4,000,000 of exemption left. W makes another gift of $1,000,000.
W’s remaining exemption is $4,250,000. When she made her gift
her Last Deceased Spouse was H1 and he had left her $5,000,000
DSUE that she used up. When she married H2 she does not get his
exemption until he dies (or they gift split). Therefore the gift she
made reduced her own exemption amount.
III.
HOW DOES PORTABILITY EFFECT QDOTs? Temp. Reg. § 25.2505-2T(d)(i), (ii)
basically provides that the DSUE as it applies to a QDOT is determined when the
surviving spouse dies (or the QDOT terminates). When the surviving spouse dies, the
amount of the QDOT is treated as a taxable transfer at the time of H1’s death. In general,
the surviving spouse is not able to use the DSUE for the surviving spouse’s lifetime gifts
unless the surviving spouse makes the gift in the same year that the surviving spouse dies.
Also, the surviving spouse is not able to personally use any part of the DSUE unless there
is a treaty between the US and the other country. Temp. Reg. § 25.2505-3T(e).
A. Example 1. H is a US Citizen and W is a resident, non-US Citizen. H dies in 2011
leaving a $3,000,000 estate. Of that amount, $1,000,000 in taxable gifts were
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