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“The DSUE Coin Flip”

Trusts & Estates By Kristin A. Occhetti, John T. Bannen

Both at the planning stage and at the death of the first spouse, an estate planner must consider what role, if any, the ability to use the estate tax exemption of the first to die should play.1 An estate may be so large that the deceased spouse’s exemption should be used to create a credit shelter trust that will allow assets to appreciate and accumulate outside the surviving spouse’s estate.

On the other hand, an estate planner may choose to forego the use of a credit shelter trust, assuming that a deceased spousal unused exclusion (DSUE) election will be made to carry over the surviving spouse’s unused federal estate tax exemption of the deceased spouse. In this event, we assume that there’s little chance that the combined estate on the death of the surviving spouse will exceed the DSUE amount plus the surviving spouse’s inflation-adjusted estate tax exemption.2 In the smallest estates, an estate planner may even forgo both a credit shelter trust and the DSUE election. 

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