Which concept enables the surviving spouse to utilize any unused portion of the first spouse's exemption?

Which concept enables the surviving spouse to utilize any unused portion of the first spouse's exemption?

• A. Unified Gift and Estate Tax
• B. Credit Shelter Trust
• C. Portable
• D. Taxable Estate

Answer: (C)

Portability of the unused federal estate tax exemption lets the surviving spouse add the deceased spouse’s unused exemption to the surviving spouse’s own exemption. When the first spouse dies, the estate can elect to preserve and transfer any unused portion of the exemption (the DSUE) to the survivor, who can apply it at their death to shelter more assets from federal estate tax. For this to work, the executor must file a federal estate tax return (Form 706) for the deceased spouse and elect portability; the DSUE is essentially the difference between the exemption amount and what the deceased’s estate used, within the law’s limits. Keep in mind, portability is a federal concept and not all states treat it the same way, so state taxes may not benefit from it. This mechanism makes it possible for the surviving spouse to lever extra tax-free wealth at death beyond their own basic exemption.

Portability of the unused federal estate tax exemption lets the surviving spouse add the deceased spouse’s unused exemption to the surviving spouse’s own exemption. When the first spouse dies, the estate can elect to preserve and transfer any unused portion of the exemption (the DSUE) to the survivor, who can apply it at their death to shelter more assets from federal estate tax. For this to work, the executor must file a federal estate tax return (Form 706) for the deceased spouse and elect portability; the DSUE is essentially the difference between the exemption amount and what the deceased’s estate used, within the law’s limits. Keep in mind, portability is a federal concept and not all states treat it the same way, so state taxes may not benefit from it. This mechanism makes it possible for the surviving spouse to lever extra tax-free wealth at death beyond their own basic exemption.