As we have discussed in previous newsletters, the concept of “portability” introduced in 2012 allows a surviving spouse to use the unused federal estate tax exemption of the first spouse to die, but only if a federal estate tax return is filed for the estate of the first spouse to die. The unused exemption “inherited” by the surviving spouse is referred to as the deceased spousal unused exemption (DSUE) amount. Given the current high federal estate tax exemption an increasing number of married couples may be able to rely on portability to shield their assets from the federal estate tax. As mentioned in our previous newsletters, there are potential downsides to relying only on portability. Each estate plan is unique and portability, like all planning techniques, must be considered in light of the particular client’s situation.
Whether or not you are relying on portability, your estate planning documents should address portability issues, including who bears the cost of filing the federal estate tax return and whether a surviving spouse has the right to require that such a return be filed to protect his or her right to the unused exemption of the first spouse to die. The need to address portability was evidenced in a recent court case in which a surviving spouse and the decedent’s child from a prior relationship had a dispute over the use of portability. In the recent case, the decedent’s stepdaughter whose mother predeceased the decedent, sued to claim that the decedent’s heirs who were receiving his estate had been unjustly enriched by the use of her mother’s DSUE. The daughter was seeking payment for the use of her mother’s DSUE by the family of her stepfather, even though no estate tax was due or paid when her mother died. The case was dismissed on other grounds, but it is an example of the type of litigation that can arise over the use of DSUE if the use of DSUE is not addressed properly in your Will.
