Estate Tax Shelter

With careful planning, most families can avoid dire federal estate tax consequences, due mainly to the generous estate tax exemption, which is $15 million for 2026.

Strategy: Maximize the "deceased spousal unused exemption" (DSUE) election for married couples. This election allows an estate to claim the "leftover" exemption of the estate of the predeceased other spouse. But the DSUE election must be made in time by the estate of a previously deceased spouse.

Here's the whole story: Under the One Big Beautiful Bill Act (OBBBA), the ever-increasing estate tax exemption was raised to $15 million for 2026. Therefore, a married couple can effectively shelter from federal estate tax up to $30 million of assets. The OBBBA also authorizes annual inflation indexing of the exemption amount for 2027 and beyond.

What's more, under the current rules, the exemption is "portable" between spouses. This means that the estate of the second spouse to die can utilize the unused portion of the exemption from the estate of the first spouse to die.

Example: Say a husband predeceases his wife and bequeaths all his assets to her estate tax-free under the unlimited marital deduction. When the wife dies, her estate can benefit from two exemptions (her exemption plus the unused exemption from the deceased husband's estate). For a wealthy couple, this can often eliminate any federal estate tax liability and literally save millions of tax dollars.

However, the benefits of the DSUE election aren't automatic.

New decision: The wife of a couple residing in Ohio died in 2016. But her estate tax return was filed late and failed to list the value of her assets. It just indicated a gross amount of $3 million to be distributed to 13 non-spouse beneficiaries. The husband died in 2018 with an estate that exceeded the estate tax exemption. The return for his estate was timely filed and reported over $3.7 million in DSUE, plus the 2018 exclusion of $11.18 million. The total exclusion came to around $14.9 million. However, the IRS' computers flagged the returns.

Tax outcome: Because the wife's return wasn't timely filed, omitted certain required information and didn't qualify for special safe-harbor relief, the Tax Court denied the entire DSUE election. (Est. of Rowland, TC Memo 2025-76, 7/15/25)