Elaine Gagliardi on Determination of the Applicable Exclusion Amount

In this Analysis, Elaine Gagliardi discusses determination of the applicable exclusion amount available to estates of decedents dying in 2011 and 2012. In particular, Notice 2011-82 provides guidance as to how to preserve the deceased spousal unused exclusion amount and how to make the election. Ms. Gagliardi writes:

For decedents dying in 2011 and 2012, the applicable exclusion amount is comprised of the "basic applicable exclusion amount" and the "deceased spousal unused exclusion amount" (DSUE amount) The basic applicable exclusion amount equals $5 million in 2011. In 2012, indexing of the basic applicable exclusion amount begins. Indexing for cost of living adjustment is based on calendar year 2010 dollars and increased in $10,000 intervals. The basic applicable exclusion is then added to the DSUE amount, to determine the applicable exclusion amount available to estates of decedents dying in 2011 and 2012.

The Code indicates the DSUE amount may only be claimed by the estate of a surviving spouse, if the deceased spouse's estate filed an estate tax return, computed the DSUE amount, and made an election on a timely filed return (including extensions). It also limits the DSUE amount claimed by the estate of the surviving spouse to the DSUE amount elected in the estate of the "last . . . deceased spouse." The Service has not yet issued regulations addressing the DSUE amount. It has, however, issued Notice 2011-82 providing guidance as to how the election is to be made.

Notice 2011-82 confirms that it is necessary to file an estate tax return to preserve the DSUE amount and make the election. An estate tax return must be filed even if the estate of the first spouse to die does not exceed the basic exclusion amount. Thus, the executor must timely file the estate tax return for estates of 2011 and 2012 decedents if the estate wishes to provide the surviving spouse the benefit of the decedent's DSUE amount. Estates of decedents dying prior to 2011 may not make the election. To obtain the benefits of portability, the executor must file even if the estate is not of sufficient size to otherwise require filing.

(footnotes omitted)

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