The American Taxpayer Relief Act of 2012 modified the federal estate tax law to allow a surviving spouse to take advantage of any unused portion of the deceased spouse's federal estate tax exclusion or "Deceased Spouse Unused Exclusion" ("DSUE") amount.
Take, for example, Jack and Jill. Jack died in 2013, a year in which the effective federal estate tax exclusion was $5.25 million and left $2.5 million of assets to Jack and Jill's two (2) children. After Jack's death, Jill filed the necessary federal estate tax return to claim the DSUE amount of $2.75 million associated with Jack.
Jill died at the beginning of 2014, a year in which the federal estate tax exclusion is $5.34 million and left assets of more than $6.5 million to the couple's two (2) children. Jill's federal estate tax exclusion of $5.34 million plus the DSUE associated with Jack will allow the couple's children to receive that $6.5 million without the payment of federal estate tax.
This brief overview of some important considerations associated with estate taxes is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.