Estate Tax Portability

A portability election allows a surviving spouse to claim and use any unused portion of the deceased spouse’s federal estate tax exemption. In effect, it permits the couple’s combined exemption to be doubled and transferred to the surviving spouse, so that substantially more wealth can pass to heirs free of federal estate tax. Without portability, the first spouse to die would lose the unused portion of their exemption.

The problem portability solves

Federal estate tax applies to estates exceeding a certain threshold (currently around $13.6 million per person for 2024–2025). Any amount above the threshold is taxed at 40%. For many families, this is irrelevant—their estates are too small to trigger the tax. But for wealthy couples, it is a serious concern.

Historically, married couples faced a timing problem. Suppose John and Mary are married, each with an estate worth $10 million. The federal exemption is $13.6 million. When John dies, his $10 million estate is well below the exemption, so no estate tax is owed. But his unused $3.6 million exemption was lost—he “wasted” it.

Mary survives with her own $13.6 million exemption. If Mary then dies with a $10 million estate, that also falls below her exemption. Together, they had $20 million in exemption capacity but only needed $10 million of it. The other $10 million was simply forfeited, a penalty for John dying first.

To work around this, wealthy couples often used complex trust structures called “credit shelter trusts” or “bypass trusts” to preserve the first spouse’s exemption. These trusts were effective but required careful drafting and ongoing administration.

Portability, introduced in 2010, eliminated the need for most couples to use these complex trusts. It allows the surviving spouse to claim the deceased spouse’s unused exemption automatically, so the first death no longer results in wasted tax capacity.

How portability works

When the first spouse dies, the surviving spouse (or the deceased spouse’s executor) can file a federal estate tax return—Form 706—even if the estate is small enough that no tax is owed. On that return, the executor elects portability and reports the deceased spouse’s unused exemption amount.

Once the election is made, the surviving spouse can use that “Deceased Spousal Unused Exemption” (DSUE) amount alongside their own exemption. If John dies with a $10 million estate and a $13.6 million exemption (leaving $3.6 million unused), Mary can claim that $3.6 million DSUE. She can then shield up to $13.6 million plus $3.6 million = $17.2 million from federal estate tax.

The key requirement is that the election must be made on a timely-filed Form 706. If the executor misses the deadline (generally nine months after death, extendable by six months with proper filing), the DSUE is lost forever. So the first task after a spouse’s death is typically to consult a tax professional about whether to file and elect portability.

When portability helps most

Portability is most valuable for couples where:

• One spouse dies with significant unused exemption: If John has a small or modest estate relative to the exemption, he will leave most of it unclaimed. Portability captures that value.
• The surviving spouse has a large estate: Mary’s own wealth is substantial enough that she will approach or exceed her exemption when she dies. Having access to John’s unused DSUE can save hundreds of thousands in taxes.
• The couple wants simplicity: Without portability, wealthy couples needed credit shelter trusts, detailed instructions, and ongoing compliance. Portability allows them to hold assets in straightforward ways (joint ownership, in their individual names, or in simple arrangements) while still benefiting from the preserved exemption.

A practical example: John and Mary each have $8 million in assets. John dies, using none of his exemption. With portability, Mary can leave up to $27.2 million tax-free to their children (her $13.6 million plus John’s $13.6 million DSUE). Without it, her estate would owe federal tax on the amount above $13.6 million.

Portability does not reduce estate size

A crucial point: portability is a tax shelter, not an estate reduction mechanism. The DSUE allows the surviving spouse to transfer more to heirs without tax, but it does not shrink the taxable estate itself. If the goal is to reduce the estate size (to lower state estate taxes, simplify administration, or distribute wealth during lifetime), other tools like gifting, life insurance trusts, or charitable giving are necessary.

Interaction with trusts and complex planning

For very large estates, portability alone may not be sufficient. A couple with $40 million in combined wealth will exceed the portability threshold ($27.2 million combined exemption), triggering 40% federal estate tax on the excess. Even with portability, they will owe significant taxes.

In such cases, couples often still use credit shelter trusts or other advanced structures to:

• Shelter additional amounts through strategic trust design and generation-skipping tax planning.
• Separate assets for management and control purposes.
• Create income streams for beneficiaries while protecting principal.

Portability and trust planning are not mutually exclusive; they often work together.

State estate taxes and portability

Portability applies only to the federal estate tax. Most states do not have their own estate taxes, but a few do (including Massachusetts, Connecticut, Maine, and a handful of others). Those states generally do not recognize portability, so married couples living in states with estate taxes still need to plan carefully, sometimes using state-specific trust arrangements.

A surviving spouse in a state with an estate tax might have enough combined federal exemption (via portability) to escape federal taxation but still face state taxes. Consulting a state-specific estate planning attorney is essential for residents of estate-tax states.

The portability election deadline

The election to claim portability must be made on Form 706 filed by the April 15 deadline following the year of the spouse’s death (or nine months after death, whichever is later). An extension can push this to October 15. After that date, the election is lost.

In practice, this means the executor should consult a tax professional within months of the spouse’s death to determine whether Form 706 should be filed and whether portability makes sense for the couple’s circumstances.

Planning implications

For couples who anticipate using portability, planning is straightforward: hold assets in ways that are uncomplicated (individual names, joint tenancy, or simple accounts) and ensure the executor knows to file the estate tax return timely. Some couples leave written instructions in their will or estate plan directing the executor to claim portability.

For couples with very large estates that will exceed the portability threshold, more advanced planning—such as irrevocable life insurance trusts, grantor retained annuity trusts (GRATs), or charitable planning—may be warranted.

Sunset risk and congressional uncertainty

The current exemption amounts ($13.6 million per person, $27.2 million with portability) are set to “sunset” or expire on December 31, 2025, after which the exemption is slated to revert to approximately $7 million per person (adjusted for inflation) unless Congress extends current law. This creates uncertainty: a couple enjoying $27.2 million in combined exemption today could face a much smaller amount in 2026 and beyond.

If Congress does not act, married couples with estates between $14 million and $27.2 million should expect significant planning changes. Many advisors recommend that such couples consider gifting or other wealth transfer strategies sooner rather than later if they want to maximize use of the current exemptions.

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