Lifetime Exclusion (Basic Exclusion Amount)

The basic exclusion amount determines how much you can transfer tax-free during life and at death. Understanding the exclusion amounts, portability between spouses, and the unlimited marital deduction is key for exam questions on estate planning.

The Basic Exclusion Amount

The basic exclusion amount is the total dollar value of assets a person can transfer (during life and at death combined) without owing federal gift or estate tax:

• For 2025: $13.99 million per individual ($13,990,000)
• Married couples can effectively shield up to $27.98 million combined
• The exclusion applies to the combined total of lifetime taxable gifts and the taxable estate at death
• The amount is indexed for inflation and adjusts annually

Portability Between Spouses

Portability allows a surviving spouse to use the deceased spouse's unused exclusion:

• If the first spouse to die does not use their entire exclusion, the unused portion can transfer to the surviving spouse
• The estate of the first spouse must file Form 706 (estate tax return) to elect portability, even if no estate tax is owed
• The surviving spouse can then add the deceased spousal unused exclusion (DSUE) to their own exclusion

Example:

• First spouse dies with a $4 million taxable estate (2025)
• Their unused exclusion: $13.99M - $4M = $9.99 million
• If Form 706 is filed, the surviving spouse's available exclusion becomes: $13.99M + $9.99M = $23.98 million

Exam Tip: Gotchas

• Portability requires filing Form 706 even when the estate owes no tax. If the executor fails to file, the unused exclusion is lost. Portability is NOT automatic; it must be elected.
• Portability applies to the estate/gift tax exclusion but NOT to the generation-skipping transfer tax (GST) exemption. The GST exemption cannot be transferred to a surviving spouse.

Unlimited Marital Deduction

Transfers between spouses receive special treatment under the tax code:

• Transfers between spouses (during life or at death) are generally not subject to gift or estate tax
• The unlimited marital deduction allows any amount to pass between spouses tax-free
• There is no cap: a spouse can leave $100 million to their partner with zero transfer tax

Non-citizen spouse exception:

Exam Tip: Gotchas

• The unlimited marital deduction requires the receiving spouse to be a U.S. citizen. For non-citizen spouses, the rules are more restrictive: a special $190,000 annual exclusion for lifetime gifts, and a qualified domestic trust (QDOT) requirement for transfers at death.