DSUE
The Deceased Spousal Unused Exemption (DSUE) is the portion of a deceased spouse's federal estate tax exemption that was unused at the first death and is inherited by the surviving spouse through a portability election (§2010(c)(5)). DSUE is fixed at the dollar amount calculated on the first death's Form 706 and does NOT receive inflation indexing between deaths.
DSUE is the operational artifact of the portability election. The dollar amount equals the deceased spouse's unused exemption at first death — typically the full federal exemption ($13.99M for 2026) when the first-to-die's estate passes to the surviving spouse under the unlimited marital deduction. The surviving spouse can use this amount on top of her own exemption for lifetime gifts and at her eventual death.
The non-indexing of DSUE is a structural quirk that argues against portability for couples expecting significant growth or significant inflation between deaths. A husband dying in 2026 with $13.99M unused exemption hands the wife exactly $13.99M of DSUE — no indexing. If the wife dies 25 years later in 2051, federal exemption is likely $25M+ (inflation-indexed); the wife's own exemption rises with inflation, but the inherited DSUE is still $13.99M. A credit-shelter trust funded with $13.99M at the first death would have grown along with markets in the meantime, often to $30M+.
For most couples without growth expectations exceeding inflation, DSUE is mechanically simpler than credit-shelter trusts and just as effective. The decision becomes a judgment about expected estate growth, expected inflation, and willingness to manage trust complexity. Couples with $5M–$15M combined estates routinely choose portability + DSUE for simplicity. Couples with $20M+ combined estates and dynamic businesses lean toward credit-shelter trusts to capture growth outside the surviving spouse's estate.
E_total = DSUE + E_own − G_used- DSUE
- = Deceased spousal unused exemption (fixed at first-death amount)
- E_own
- = Survivor's own exemption at second death (inflation-indexed)
- G_used
- = Cumulative lifetime taxable gifts by survivor (DSUE used first)
DSUE $13.99M (from 2026 first death) + own exemption $25M (assumed 2051 amount) − $4M lifetime gifts = $34.99M available at second death.Synthetic widowed households should track the DSUE amount and its origination year, the survivor's own exemption (with annual inflation indexing), and the cumulative usage of both pools. Federal gift tax filings (Form 709) during the survivor's life should debit DSUE before the survivor's own exemption. Estate tax filings at second death should compute the available exemption as DSUE + own (less prior usage).
Common pitfalls
- Treating DSUE as inflation-indexed — it isn't; the survivor's own exemption indexes, the inherited DSUE doesn't.
- Using DSUE last instead of first — the §2010(c)(5)(B) statutory ordering is DSUE before own exemption.
- Forgetting that DSUE is forfeited if the survivor remarries and the new spouse predeceases — the new spouse's DSUE replaces the old one.
- Counting DSUE inherited from multiple deceased spouses — only the most-recent deceased spouse's DSUE applies (the 'last deceased spouse' rule).
Examples
Wife inherits $13.99M DSUE from Husband 1 in 2026. Wife remarries Husband 2 in 2032. Husband 2 (with smaller estate) dies in 2040 with $5M unused exemption. Wife now has $5M DSUE from Husband 2; the $13.99M from Husband 1 is gone. Even though Husband 1's DSUE was larger, the 'last deceased spouse' rule replaces it.