Deceased Spousal Unused Exclusion: Form 706, Remarriage, and IRS Review

The deceased spousal unused exclusion, or DSUE, lets a widow or widower add whatever portion of their late spouse’s federal estate and gift tax exemption went unused at death to their own exemption. For deaths in 2026, each person’s basic exclusion is $15 million, so a couple that plans around portability can potentially move up to $30 million out of their combined estates free of federal estate and gift tax.¹ The catch: the surviving spouse gets nothing automatically. The executor of the first spouse’s estate has to file a federal estate tax return to elect portability, even when the estate owes no tax.

The $15 million figure comes from the One, Big, Beautiful Bill Act, signed on July 4, 2025, which made the higher exemption permanent rather than letting it sunset. Starting in 2027, the amount will be adjusted for inflation using 2025 as the base year.² For DSUE purposes, what matters is the exclusion in effect the year the first spouse died, not the year the survivor eventually uses it. A spouse who died in 2024 was working against a $13.61 million ceiling; a spouse who died in 2025, $13.99 million.¹ The DSUE amount is frozen at the year-of-death figure and never grows with inflation.

How the DSUE Amount Is Calculated

Under Internal Revenue Code Section 2010(c)(4), the DSUE equals the lesser of two numbers. The first is the basic exclusion in effect at the deceased spouse’s death. The second is the deceased spouse’s applicable exclusion reduced by the portion consumed by their taxable estate and lifetime taxable gifts.² Whichever is smaller becomes the DSUE.

In a straightforward first marriage where the deceased spouse never received DSUE from anyone else, the basic exclusion and the applicable exclusion are the same number, and the formula reduces to: basic exclusion minus the sum of the taxable estate and adjusted taxable gifts. Adjusted taxable gifts are cumulative post-1976 gifts above the annual exclusion, excluding any already counted in the gross estate. The annual gift tax exclusion for 2026 is $19,000 per recipient, so only amounts above that in a given year enter the calculation.³

A worked example. A spouse dies in 2026 leaving a $4 million taxable estate and $1 million in adjusted taxable gifts. Their applicable exclusion is $15 million. The formula compares $15 million to $15 million minus $5 million, which is $10 million. The lesser figure is $10 million, so the surviving spouse receives $10 million in DSUE.² Added to that survivor’s own $15 million, they can now transfer up to $25 million free of federal estate and gift tax during life or at death.

The Form 706 Filing Is Not Optional

Portability requires the executor to file Form 706, the United States Estate and Generation-Skipping Transfer Tax Return, and complete the DSUE calculation on it. Filing a complete and timely Form 706 is itself the portability election; no separate form or checkbox opts you in.⁴ The filing requirement applies regardless of estate size. A $2 million estate that owes no tax still has to file Form 706 if the surviving spouse wants the unused exclusion.⁵

The return is due nine months after death. An automatic six-month extension is available by filing Form 4768 before the original deadline.⁶

If the Deadline Was Missed

A missed nine-month deadline does not always cost the DSUE. Revenue Procedure 2022-32 offers a simplified late-election route for estates that were not otherwise required to file. Under the procedure, the executor can file a complete Form 706 up to five years after the date of death.⁷

The simplified method is available only when all of these conditions are met:

The decedent was survived by a spouse.
The decedent died after December 31, 2010.
The decedent was a U.S. citizen or resident at death.
The estate was not required to file under Section 6018(a) based on the gross estate and adjusted taxable gifts alone.
No estate tax return was filed within the original deadline.

An estate that exceeded the filing threshold, or one that filed on time but forgot to complete the portability portion, cannot use the simplified method. Relief in those cases requires a private letter ruling, which is more expensive and less certain.⁷

What Remarriage Does to Your DSUE

For anyone who has been widowed more than once, or who has remarried after being widowed, the ordering rules deserve close attention. Treasury regulations apply what is called the last deceased spouse rule: only the DSUE from the most recent deceased spouse counts going forward.⁸

Say a first spouse died leaving you $12 million in DSUE. You remarry. Your second spouse then dies with zero unused exclusion. The $12 million from the first spouse is gone. The replacement is automatic and does not compare amounts.

There is one way to hold onto DSUE from an earlier spouse: use it on lifetime gifts before a new spouse dies. Once you apply DSUE to a taxable gift, that consumed portion is locked in permanently. If a later spouse dies, your total available exclusion at that point is the DSUE from the last deceased spouse plus whatever DSUE from an earlier spouse you already applied to lifetime gifts.⁸ Anything you never used disappears the moment a new spouse dies.

The gift tax rules help here. When a surviving spouse who holds DSUE makes a taxable gift, the DSUE is consumed before the survivor’s own basic exclusion.⁹ That ordering works in the taxpayer’s favor: the vulnerable amount is spent first, and the survivor’s own exclusion, which cannot be taken away by anyone else’s death, stays intact.

What DSUE Does Not Cover

Two limits catch people off guard.

First, the generation-skipping transfer tax exemption is not portable. Each spouse has their own GST exemption (also $15 million in 2026), but any portion unused at the first death dies with the first spouse. DSUE covers the estate and gift tax applicable exclusion only.⁴ Families expecting to leave wealth to grandchildren need to allocate GST exemption during the first spouse’s life or at death rather than assume it can pass to the survivor.

Second, portability generally does not work when a spouse is not a U.S. citizen. A nonresident noncitizen surviving spouse cannot use DSUE except to the extent a tax treaty allows it, and the estate of a nonresident noncitizen deceased spouse cannot elect portability at all.⁴ For a noncitizen surviving spouse who is a U.S. resident, the rules turn on whether property passes through a Qualified Domestic Trust. The DSUE is preliminary while the QDOT is in place, adjusts as distributions trigger tax under Section 2056A, and cannot be applied to lifetime gifts during that period. If the surviving spouse naturalizes, the DSUE becomes final as of that date. Anyone in this situation should get professional advice; the interaction between QDOT rules and portability is not something to work through alone.

The IRS Can Reopen the First Estate’s Return

Here is a detail worth planning around. The IRS can examine the deceased spouse’s Form 706 to verify the DSUE figure even after the normal statute of limitations on that return has run. The authority attaches to each later transfer by the surviving spouse where a DSUE amount is claimed.⁸

If the review shows the original return overstated the unused exclusion, the surviving spouse’s available DSUE is adjusted or eliminated. The one limit on the IRS is that it cannot go back and assess additional estate tax on the first spouse’s estate once that return’s own statute has expired. The examination power covers the DSUE number, not back taxes on the first estate.⁹

A surviving spouse may rely on a DSUE figure for decades. Keep the filed Form 706, the appraisals and supporting valuations, and proof of mailing in permanent files. The cabinet space is cheap; the exposure of not being able to substantiate a DSUE amount later is not.

1
Internal Revenue Service. What’s New — Estate and Gift Tax
2
Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
3
Internal Revenue Service. Frequently Asked Questions on Gift Taxes
4
Internal Revenue Service. Instructions for Form 706
5
Internal Revenue Service. Form 706 – United States Estate and Generation-Skipping Transfer Tax Return
6
Internal Revenue Service. Instructions for Form 706 (Rev. September 2025)
7
Internal Revenue Service. Revenue Procedure 2022-32
8
eCFR. 26 CFR 20.2010-3 – Portability Provisions Applicable to the Surviving Spouse’s Estate
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eCFR. 26 CFR 25.2505-2 – Gifts Made by a Surviving Spouse Having a DSUE Amount Available