What is the term for allowing the unused portion of the deceased spouse's exemption to be used by the surviving spouse?

What is the term for allowing the unused portion of the deceased spouse's exemption to be used by the surviving spouse?

• A. Unified Gift and Estate Tax
• B. Credit Shelter Trust
• C. Unlimited Marital Deduction
• D. Portable

Answer: (D)

Portability describes transferring the unused portion of the deceased spouse’s federal estate tax exclusion to the surviving spouse. When a spouse dies, any part of their exemption that wasn’t used becomes the deceased spouse’s unused exclusion (DSUE). The surviving spouse can elect to apply that DSUE to their own estate tax exclusion, increasing the amount that can pass tax‑free at the survivor’s death. This election is made on the deceased spouse’s estate tax return (Form 706) and must be timely filed to be effective. For example, if the first spouse could have sheltered $X but used only part of it, the remaining amount becomes DSUE. The surviving spouse then combines their own exemption with DSUE, potentially sheltering more assets from federal estate tax at their death. This is a planning option many families use to maximize tax efficiency, though it requires a timely election and awareness of current law. Other options, like a credit shelter trust or relying on the unlimited marital deduction, pursue tax goals through different mechanisms and have their own advantages and trade-offs.

Portability describes transferring the unused portion of the deceased spouse’s federal estate tax exclusion to the surviving spouse. When a spouse dies, any part of their exemption that wasn’t used becomes the deceased spouse’s unused exclusion (DSUE). The surviving spouse can elect to apply that DSUE to their own estate tax exclusion, increasing the amount that can pass tax‑free at the survivor’s death. This election is made on the deceased spouse’s estate tax return (Form 706) and must be timely filed to be effective.

For example, if the first spouse could have sheltered $X but used only part of it, the remaining amount becomes DSUE. The surviving spouse then combines their own exemption with DSUE, potentially sheltering more assets from federal estate tax at their death. This is a planning option many families use to maximize tax efficiency, though it requires a timely election and awareness of current law. Other options, like a credit shelter trust or relying on the unlimited marital deduction, pursue tax goals through different mechanisms and have their own advantages and trade-offs.