Portability (Deceased Spouse)

In U.S. federal estate tax planning, portability allows a surviving spouse to claim the deceased spouse’s unused lifetime exemption amount. When the first spouse dies, any unused exemption—not spent during life or at death—can be “ported” to the survivor. This effectively allows married couples to double their combined exemption without complex trust structures.

Why portability matters: the simple case

Assume a couple with $15 million in assets (each spouse owns $7.5 million). The current estate tax exemption is $13.61 million per person. In 2024:

Without portability:

• First spouse dies with $7.5 million → $0 estate tax (within exemption).
• Survivor inherits $7.5 million, now owns $15 million total.
• Survivor dies → owns $15 million, exemption is $13.61 million → estate tax due on $1.39 million (~55% rate = ~$764k tax).

With portability:

• First spouse dies with $7.5 million → $0 estate tax.
• Survivor elects portability, inheriting the first spouse’s unused exemption ($6.11 million).
• Survivor now has a combined exemption of $19.72 million ($13.61 + $6.11).
• Survivor dies owning $15 million → no estate tax.

This saves the family hundreds of thousands of dollars. Portability is one of the most powerful but underutilized estate tax tools.

The portability election

Portability is not automatic. The surviving spouse (or their executor) must file Form 706 (U.S. Estate Tax Return) within nine months of the first spouse’s death, even if the estate is well below the exemption threshold. The form specifically elects portability.

Failure to file Form 706 means portability is lost forever. Many families whose estates fall below the threshold skip the return, unaware that they are foregoing hundreds of thousands in tax savings. A $12 million estate (below the exemption) still benefits from filing because the unused $1.61 million exemption can be ported.

This is a critical planning gap: many middle-class estates (with life insurance, retirement accounts, real property) exceed exemptions when aggregated and should have a portability election on file.

Portability and remarriage

A key limitation: if the surviving spouse remarries, portability of the first spouse’s exemption is typically lost. This applies both ways—if the surviving spouse remarries, their new spouse cannot later claim the first spouse’s exemption after the survivor dies.

However, there are narrow exceptions:

1. If the survivor remarries but the new marriage ends in death or divorce, portability may be restored to claim any remaining exemption.
2. Some practitioners argue portability can be “locked in” via a Disclaimer Trust, though the IRS has not formally endorsed this.

For second and third marriages (blended families), this creates planning complexity. Couples with significant assets should consider prenups, marital trusts, or QTIP structures to protect their exemptions from loss due to remarriage.

Portability sunsets in 2025

The exemption amounts under the Tax Cuts and Jobs Act (2017) are set to sunset on December 31, 2025. When they do:

• The per-person exemption drops to roughly $7 million (inflation-adjusted, 2026 projected value).
• The combined marital exemption drops to ~$14 million.
• Portability remains available, but the benefit shrinks by 50%.

A couple with $15 million in assets that relied on portability suddenly faces a $1 million taxable estate. Many advisors are recommending “portability plans” now—structuring assets to lock in the higher exemption before the sunset.

Portability vs. bypass trusts

Historically, married couples used A-B bypass trusts (also called disclaimer trusts):

• The first spouse’s will creates a “Bypass Trust” funded with an exemption-amount of assets.
• The “Marital Trust” (A Trust) holds the remainder, passing to the survivor.
• This splits assets across two separate exemptions.

Bypass trusts are more complex (requiring separate tax IDs, annual returns, trust accounting) but offer certainty. Portability is simpler but requires disciplined execution of the Form 706 election. Many attorneys now prefer portability for straightforward estates but recommend bypass trusts for blended families or high-net-worth households where remarriage risk is real.

Portability and basis step-up

Another estate planning benefit is basis step-up—when a person dies, their heirs’ cost basis in inherited assets resets to fair market value at death. This is independent of portability but interacts with it.

If a survivor uses portability to shield $15 million of assets from estate tax, those assets still get a step-up in basis at the first spouse’s death. This is a permanent tax deferral; the step-up applies whether or not estate tax is owed. The combination of step-up + portability can be extraordinarily tax-efficient.

Portability planning across state lines

Some states impose separate estate taxes (Massachusetts, New York, Vermont, Oregon, Washington, D.C., Illinois, Maine). Federal portability does not apply to state estate taxes. A surviving spouse may need to file separate state-level elections and may not be able to use the deceased spouse’s state exemption.

For residents of high-tax states, state-level planning (moving, trust domicile selection, or charitable strategies) is essential alongside federal portability.