Portability is a federal tax rule allowing a surviving spouse to use their deceased spouse’s unused estate tax exemption. This lets a married couple combine their individual exemptions. It can shield millions more in assets from the 40% federal estate tax.
The primary conflict this rule addresses comes from a strict procedural mandate. Internal Revenue Code § 2010(c)(5)(A) requires the deceased spouse’s executor to file IRS Form 706 to transfer the unused exemption. Failing to file this form results in the permanent and irreversible loss of a multi-million-dollar tax benefit for the surviving spouse’s family. With the federal estate tax exemption set to be cut in half in 2026, this single procedural step is now one of the most critical actions in modern estate planning .
In this guide, you will learn everything you need to know to navigate this powerful but tricky rule.
- 💰 What portability is and why it is critical for your family’s wealth. We will break down the core concepts in simple, easy-to-understand terms.
- 📝 The step-by-step process to claim this benefit using IRS Form 706. You will learn what the form is, who must file it, and the strict deadlines you cannot miss.
- ❌ Critical mistakes that can cost your heirs millions and how to avoid them. We will cover the most common errors that invalidate the portability election.
- 🏦 When a traditional trust might be a better choice for your family. Portability is not a perfect solution for everyone, especially in blended families or for those living in certain states.
- 👨👩👧👦 How to handle portability in complex situations. We will explore the special rules for non-citizen spouses and how to prevent family conflict.
The Core Concepts: Understanding the Estate Tax and Your Exemption
To understand portability, you first need to know three basic ideas. These are the estate tax exemption, the unlimited marital deduction, and the old “use it or lose it” problem. Portability was created to solve this exact problem.
What Is the Federal Estate Tax Exemption?
The U.S. government taxes large fortunes when they are transferred from a deceased person to their heirs. This is the federal estate tax . However, not every estate has to pay it.
The law gives every individual an “estate tax exemption.” This is the amount of money and property they can pass on tax-free. For 2024, this amount is a historic high of $13.61 million per person . If your taxable estate is less than this amount, you owe no federal estate tax.
A major change is coming. The law that set this high exemption is scheduled to expire at the end of 2025. On January 1, 2026, the exemption will be cut roughly in half, dropping to around $7 million per person . This makes preserving every available exemption more important than ever.
The Unlimited Marital Deduction: A Special Rule for Spouses
Federal tax law has a special rule for married couples called the unlimited marital deduction . This rule allows you to transfer an unlimited amount of assets to your U.S. citizen spouse. You can do this during your lifetime or at your death, completely free of any estate or gift tax .
This rule is a powerful tool for financial security. It ensures that when the first spouse dies, the surviving spouse is not forced to sell assets to pay a large tax bill. However, for decades, this rule also created a significant planning problem.
The Old Problem: Why “Use It or Lose It” Forced Complex Planning
Before 2011, the estate tax exemption was a “use it or lose it” benefit . Imagine a husband dies and leaves his entire $8 million estate to his wife using the unlimited marital deduction. Because the transfer to his wife is 100% tax-free, his taxable estate is $0.
While no tax is due at his death, he did not use any of his personal estate tax exemption. Under the old rules, his exemption was simply wasted and disappeared forever . His wife was then left with only her own single exemption to cover their combined estate, which was now much larger and more likely to face a tax bill at her death.
To get around this, couples had to use complex and expensive planning. They often created special trusts, called credit shelter trusts or bypass trusts. These trusts were designed to hold assets and “use” the first spouse’s exemption . This worked, but it was burdensome and required careful management.
Portability: The Modern, Flexible Solution
The government recognized this problem and introduced a new rule: portability . First introduced as a temporary measure in 2010, it was later made permanent by the American Taxpayer Relief Act of 2012 .
Portability is the rule that allows the unused portion of a deceased spouse’s exemption to be transferred to the surviving spouse . The official name for this transferred amount is the Deceased Spousal Unused Exclusion, or DSUE .
With portability, the “use it or lose it” problem is gone. The surviving spouse can now add the DSUE from their deceased spouse to their own exemption, effectively combining them . This allows a married couple to shield up to $27.22 million (in 2024) from federal estate tax without needing complex trusts.
How to Claim Portability: A Minefield of Strict Rules and Deadlines
Here is the single most important thing to know about portability: it is not automatic . You must take a specific, formal step to claim it. Failing to do so means you lose the benefit forever.
The Executor’s Critical Role and Personal Liability
The legal power and responsibility to elect portability belong exclusively to the executor of the deceased spouse’s estate . The executor, sometimes called a personal representative, is the person named in the will or appointed by a court to manage the deceased’s final affairs. The surviving spouse cannot make this election on their own.
This is a serious legal obligation, known as a fiduciary duty. If an executor fails to make the portability election and this causes the surviving spouse’s estate to later pay taxes that could have been avoided, the executor could be held personally liable for the financial damage .
The Only Way to Elect: Filing IRS Form 706
The only way to elect portability is by filing Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, with the IRS .
This rule creates a major trap. You must file this form even if the deceased spouse’s estate is too small to owe any estate tax . Many executors see that no tax is due and wrongly assume no paperwork is needed. This is a multi-million-dollar mistake. For estates that are not taxable, Form 706 serves as the official instrument to calculate and transfer the DSUE to the surviving spouse.
The Unforgiving Filing Deadlines You Cannot Miss
The standard deadline for filing Form 706 is nine months after the date of death .
You can get an automatic six-month extension by filing Form 4768 before the original nine-month deadline passes . This pushes the final deadline to 15 months from the date of death. It is wise to file for this extension as a standard practice to give yourself more time.
A Five-Year Lifeline for Smaller Estates
The IRS recognized that many people were accidentally missing the deadline for non-taxable estates. To help, they created a special relief rule under Revenue Procedure 2022-32 .
This rule states that if the deceased spouse’s estate was not legally required to file a Form 706, the executor has up to the fifth anniversary of the date of death to file the return and elect portability . To use this relief, you must write “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)” at the top of the Form 706 .
Warning: This five-year lifeline is only for estates that are not otherwise required to file. If the estate’s value is over the filing threshold for its year of death, the 15-month deadline is absolute. Missing it means the portability election is lost forever .
Strategic Crossroads: Portability vs. the Traditional Credit Shelter Trust
Portability is simple and powerful, but it is not always the best tool for every family. The traditional credit shelter trust still plays a vital role in many estate plans. The choice between them involves important trade-offs related to taxes, control, and asset protection.
The Case for Portability: Simplicity and a Powerful Income Tax Benefit
The main advantage of a portability-based plan is its simplicity . A couple can use simple wills and hold assets jointly without the administrative hassle and cost of managing a trust .
A key tax benefit of portability is the potential for a “double step-up in basis.” When assets are inherited, their cost basis for capital gains tax purposes is “stepped up” to the fair market value at the date of death. With portability, assets get a step-up at the first spouse’s death and then a second step-up when the surviving spouse dies . This can save heirs a tremendous amount in capital gains taxes when they eventually sell the inherited property.
The Case for Trusts: Ironclad Control, Protection, and Sheltering Growth
A credit shelter trust offers three powerful advantages that portability cannot match:
- Control Over Final Beneficiaries: The person who creates the trust decides exactly who gets the assets after the surviving spouse dies. This is essential for blended families, as it guarantees that children from a first marriage will receive their inheritance. With portability, the surviving spouse owns the assets outright and can leave them to anyone they choose.
- Asset and Creditor Protection: Assets placed in a properly structured trust are shielded from the surviving spouse’s future creditors, lawsuits, or a potential divorce . Portability offers zero protection; the assets are fully exposed to the survivor’s liabilities.
- Sheltering Asset Growth: When a credit shelter trust is funded, those assets are removed from the surviving spouse’s estate. All future appreciation and growth on those assets occur outside of the survivor’s taxable estate, passing to the next generation completely estate tax-free.
Pros and Cons: A Head-to-Head Comparison
| Portability | Credit Shelter Trust |
| Pro: Simple to implement with basic wills and joint ownership. | Con: More complex and costly to set up and administer. |
| Pro: Provides a valuable “double step-up” in basis, reducing capital gains tax for heirs. | Con: Assets in the trust do not get a second step-up in basis. |
| Pro: Flexible; the decision to elect is made after the first death. | Con: Requires advance planning and asset retitling during life. |
| Con: Offers no control over the ultimate beneficiaries of the assets. | Pro: Provides absolute control, ensuring assets go to your chosen heirs. |
| Con: Provides no protection from the surviving spouse’s creditors or lawsuits. | Pro: Shields trust assets from the survivor’s financial and legal troubles. |
| Con: The DSUE amount is fixed and does not grow with inflation. | Pro: Shelters all future appreciation on trust assets from estate tax. |
| Con: The benefit can be lost if the surviving spouse remarries and their new spouse dies first. | Pro: The trust is unaffected by the surviving spouse’s future marital status. |
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Real-World Scenarios: Making the Right Choice for Your Family
The best strategy depends entirely on your family’s unique situation. Here are three common scenarios that show how these choices play out in the real world.
Scenario 1: The Long-Term Married Couple
- The Family: David and Sarah, both 75, have been married for 50 years. They have a combined estate of $18 million, held mostly in joint accounts and their home. They have three children together and trust each other completely. Their main goal is simplicity and minimizing taxes for their children.
- The Strategy: A portability-based plan is an excellent fit. When the first spouse dies, everything passes to the survivor. The executor files Form 706 to port the unused exemption.
- The Outcome: This approach is simple and avoids the complexity of a trust. When the second spouse dies, the assets will get a full step-up in basis, saving their children a large amount in capital gains taxes. Because their total estate is well below the combined federal exemption, estate tax is not a concern.
| Action Taken | Resulting Consequence |
| David dies and leaves all assets to Sarah. | No estate tax is due because of the unlimited marital deduction. |
| David’s executor files Form 706 to elect portability. | Sarah’s exemption is now doubled, covering their entire combined estate. |
| Sarah dies years later. | Their children inherit the assets with a new, higher cost basis, eliminating capital gains tax on decades of growth. |
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Scenario 2: The Blended Family
- The Family: Mark, 65, and Lisa, 62, are in a second marriage. Mark has two children from his prior marriage, and Lisa has one. They have a combined estate of $20 million, with most of the assets in Mark’s name. Mark wants to provide for Lisa but also ensure his children inherit his family business.
- The Strategy: A credit shelter trust is essential. Relying on portability would be a mistake. Mark’s estate plan directs an amount up to his exemption into a trust for Lisa’s benefit.
- The Outcome: The trust provides Lisa with income for the rest of her life, but the underlying assets are protected. Upon Lisa’s death, the trust assets pass directly to Mark’s children, as he intended. This prevents the assets from being redirected to Lisa’s child or a potential new spouse.
| Action Taken | Resulting Consequence |
| Mark’s will creates a credit shelter trust. | Mark dictates that his children are the final beneficiaries of the trust assets. |
| Mark dies, and his exemption amount funds the trust. | The assets are protected from Lisa’s creditors and are not part of her taxable estate. |
| Lisa dies years later. | The remaining trust assets pass directly to Mark’s children, honoring his wishes and protecting their inheritance. |
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Scenario 3: The High-Net-Worth Couple with Grandchildren
- The Family: Michael and Emily have a $45 million estate and want to leave a legacy for their children and grandchildren. They are concerned about both estate tax and the Generation-Skipping Transfer (GST) tax.
- The Strategy: A hybrid approach is best. They need a credit shelter trust to use the first spouse’s GST tax exemption, which is not portable.
- The Outcome: When the first spouse dies, their plan funds a credit shelter trust up to the full exemption amount. This uses both their estate tax exemption and, critically, their GST exemption. The executor also files a Form 706 to elect portability for any remaining unused estate tax exemption, providing maximum flexibility for the surviving spouse.
| Action Taken | Resulting Consequence |
| The estate plan includes a GST-exempt credit shelter trust. | This allows the first spouse’s $13.61 million GST exemption to be used, sheltering assets for grandchildren from an extra layer of tax. |
| The executor also files Form 706 to elect portability. | The surviving spouse gains any unused estate tax exemption, adding another layer of tax protection. |
| The family wealth grows for multiple generations. | By using both a trust and portability, the family maximizes every available tax exemption, preserving more wealth over the long term. |
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Critical Blind Spots: The Hidden Dangers of Relying on Portability
Portability is a great tool, but it has major blind spots. Relying on it without understanding its limitations can lead to surprise tax bills and failed estate plans.
The State Estate Tax Disconnect
Portability is a federal law. It does not apply to most state estate taxes . Twelve states and the District of Columbia have their own estate tax, often with much lower exemptions than the federal government.
If you live in one of these states (like Massachusetts, Illinois, or Oregon) and rely only on portability, you will waste the first spouse’s state-level exemption . This can cause the surviving spouse’s estate to face a large state tax bill, even if no federal tax is due. Often, a credit shelter trust is needed to preserve both state exemptions.
The Generation-Skipping Tax Black Hole
The Generation-Skipping Transfer (GST) tax is an additional 40% tax on transfers to grandchildren or more distant descendants. Each person has a GST exemption equal to the estate tax exemption ($13.61 million in 2024).
Crucially, the GST exemption is not portable. If you use a simple plan that relies on portability, the first spouse’s GST exemption is lost forever. For wealthy families who want to create long-term trusts for future generations, this is a devastating blow. The only way to use the first spouse’s GST exemption is to allocate it to a trust at their death.
The Remarriage Trap: How the “Last Deceased Spouse” Rule Can Erase Your Benefit
The law states that a surviving spouse can only benefit from the DSUE of their most recently deceased spouse . This creates a significant risk if the surviving spouse remarries.
- Example: Susan’s first husband, Tom, dies, and his estate ports a $10 million DSUE to her. A few years later, Susan marries Bill. If Bill then dies, Susan loses Tom’s $10 million DSUE. She is now only entitled to whatever unused exemption Bill’s estate provides. If Bill used his full exemption, Susan is left with only her own, and the $10 million benefit from Tom is gone forever .
The Inflation and Growth Problem: A Fixed Benefit in a Growing World
The DSUE amount you receive from a deceased spouse is fixed in the year of their death; it is not adjusted for inflation . The surviving spouse’s own exemption will continue to rise with inflation, but the ported amount will not.
If the surviving spouse lives for many more years, or if the inherited assets grow significantly in value, the fixed DSUE may not be enough to cover the estate. The growth of the assets can easily outpace the value of the ported exemption, leading to an unexpected tax liability . A credit shelter trust, by contrast, would have removed those appreciating assets from the survivor’s estate entirely.
A Deep Dive into the Process: Navigating IRS Form 706
Filing Form 706 correctly is the key to a successful portability election. While the form is long and complex, the parts relevant to portability are specific. An executor must understand what is required to avoid making a fatal error.
What Is Form 706?
Form 706 is the U.S. Estate Tax Return. Its primary purpose is to calculate the estate tax owed by a large estate. However, for smaller estates, its secondary purpose is to officially elect portability of the DSUE.
The form requires a complete inventory of the decedent’s assets, their valuation at the date of death, and a calculation of the taxable estate. This is not a simple tax form; it requires extreme attention to detail.
Key Sections for a Portability Election
When filing solely for portability, these are the most critical parts of the form:
- Part 1: Decedent and Executor Information. This section must be filled out with perfect accuracy. It identifies the deceased person and the executor who has the legal authority to make the election .
- The Asset Schedules (Schedules A through I). This is where many mistakes happen. These schedules require you to list every single asset the decedent owned—real estate, bank accounts, stocks, business interests, personal property, etc.. You must provide a value for each asset as of the date of death. Using “estimates” for a gross value is not allowed unless you meet very specific and rare exceptions.
- Part 6, Section C: Portability of Deceased Spousal Unused Exclusion (DSUE). This is the heart of the election. Here, you formally compute the DSUE amount available to be transferred. The calculation starts with the basic exclusion amount for the year of death and subtracts any amounts used by the decedent for lifetime gifts or to cover their own taxable estate. The result is the DSUE that the surviving spouse can use .
The Strict Standard of “Complete and Properly Prepared”
The law requires the Form 706 to be “complete and properly prepared” for the portability election to be valid. As court cases have shown, the IRS enforces this standard strictly.
- Valuation is Key: You cannot simply guess at asset values. For assets like real estate or a family business, this means you must get a formal, professional appraisal.
- No Shortcuts: Do not use estimates or lump assets together. Each asset must be listed and valued individually on the correct schedule.
- Follow the Instructions: The instructions for Form 706 are detailed and must be followed precisely . Assuming you can take a shortcut because no tax is due is the mistake that invalidates many elections.
Lessons from the Courts: Two Cases Every Executor Must Know
Two major U.S. Tax Court cases have defined the harsh realities of making a portability election. They show that there is no room for error and that the IRS has far-reaching power to review your filing.
Estate of Rowland v. Commissioner: No Mercy for Sloppy Returns
- The Mistake: The executor for the first spouse to die filed a Form 706 to elect portability. However, the return was incomplete. Instead of listing and valuing each asset, the executor provided only an estimated total value for the estate and improperly tried to use a simplified reporting rule that did not apply to their situation .
- The Ruling: The IRS denied the portability election, and the Tax Court agreed. The court ruled that the return was not “complete and properly prepared” as the law requires. It rejected the estate’s arguments for “substantial compliance” or fairness, stating that the rules demand strict adherence .
- The Lesson: This case is a stark warning. There are no shortcuts. A return filed for portability must be prepared with the same diligence and detail as a return for a multi-million-dollar taxable estate. A sloppy, incomplete filing is the same as not filing at all—the election is invalid, and the DSUE is lost.
Estate of Sower v. Commissioner: The “Forever Audit”
- The Situation: The executor for the first spouse filed a Form 706, elected portability, and the IRS accepted the return. Years later, after the surviving spouse died, her estate filed its own return claiming the DSUE. During the audit of the surviving spouse’s return, the IRS went back and re-examined the first spouse’s return, even though the normal three-year statute of limitations had long expired .
- The Ruling: The IRS found unreported lifetime gifts on the first spouse’s return and reduced the DSUE amount available to the second spouse’s estate, resulting in a large tax bill. The Tax Court upheld the IRS’s right to do this, stating the law specifically allows the IRS to examine a deceased spouse’s return at any time to verify the correct DSUE amount .
- The Lesson: A portability election creates a “forever audit” risk . The DSUE amount is never truly final until the surviving spouse’s own estate tax return is settled. This makes it absolutely critical that the first return is meticulously accurate and that all supporting documentation is kept indefinitely.
A Practical Guide: Mistakes, Do’s, and Don’ts
Navigating portability requires careful attention to detail. Here are the most common mistakes and a clear guide for executors on what to do and what to avoid.
Top 5 Mistakes That Can Cost Millions
- Assuming It’s Automatic: This is the most common and costly error. Many families believe no action is needed if no tax is due at the first death. Consequence: The DSUE is permanently forfeited .
- Missing the Filing Deadline: For large estates required to file, missing the 15-month deadline is fatal. For smaller estates, forgetting about the five-year window closes the door forever. Consequence: The election is barred, with no recourse .
- Filing an Incomplete Return: Submitting a return with estimated values, missing schedules, or without proper appraisals is a direct violation of the Rowland ruling. Consequence: The IRS will invalidate the election, and the DSUE will be lost .
- Ignoring State Estate Taxes: Focusing only on the federal exemption can lead to a surprise tax bill from your state revenue department. Consequence: The surviving spouse’s estate may owe hundreds of thousands in state estate tax that could have been avoided with a trust .
- Failing to Address It in a Prenuptial Agreement: In blended families, not having a clear, written agreement about the portability election can lead to intense family conflict and litigation. Consequence: An executor (a child from a prior marriage) may refuse to file, or the surviving spouse may be unfairly burdened with the costs.
Do’s and Don’ts for Executors
| Do’s | Don’ts |
| Do hire professional help. An experienced CPA and estate attorney are essential. The cost is minor compared to the potential tax savings . | Don’t try to do it yourself. Form 706 is one of the most complex tax returns. Errors are easy to make and have severe consequences. |
| Do file for an automatic extension. Immediately file Form 4768 to extend the deadline to 15 months. This gives you valuable time to do the job right . | Don’t wait until the last minute. Gathering asset information and getting appraisals takes time. Start the process immediately after death. |
| Do get qualified appraisals. For assets like real estate, art, or a private business, a professional appraisal is not optional; it is required for a “complete and properly prepared” return. | Don’t use estimates or shortcuts. The Rowland case proves that “good enough” is not good enough. Every asset must be properly valued and reported . |
| Do communicate with the surviving spouse. Discuss the benefits and costs of making the election. Document this conversation to protect yourself from future liability. | Don’t make a unilateral decision. Especially in a blended family, failing to consult with the surviving spouse can lead to lawsuits for breach of fiduciary duty. |
| Do keep meticulous records forever. The Sower case shows that the IRS can audit the DSUE calculation years or even decades later. Keep a copy of the filed return and all supporting documents indefinitely . | Don’t assume a closing letter is the end of the story. The DSUE amount is subject to re-examination until the surviving spouse’s estate is closed . |
Navigating Complex Situations: Blended Families and Non-Citizen Spouses
Portability rules become even more complex in certain family situations. Proactive planning is key to avoiding conflict and disqualification.
Blended Families and the Power of Marital Agreements
In a blended family, the executor is often a child from a prior marriage, while the surviving spouse is their stepparent. This creates an immediate conflict of interest . The executor may be reluctant to spend estate funds (which reduces their inheritance) to prepare a tax return that only benefits their stepparent .
The best way to prevent this conflict is with a prenuptial or postnuptial agreement . A well-drafted agreement should clearly state:
- Whether the executor is required to make the portability election.
- Who is responsible for paying the costs of preparing the Form 706 (usually the surviving spouse, who gets the benefit) .
- Whether the surviving spouse will compensate the other heirs for facilitating this valuable tax benefit .
By addressing this issue in a binding agreement, you remove the decision from the executor’s discretion and prevent it from becoming a source of family strife.
Non-Citizen Spouses and the Qualified Domestic Trust (QDOT)
The rules are different if the surviving spouse is not a U.S. citizen. The unlimited marital deduction does not automatically apply to transfers to a non-citizen spouse . This is to prevent assets from leaving the U.S. tax system entirely.
To defer estate tax, assets must instead pass to a special trust called a Qualified Domestic Trust (QDOT) . This trust ensures the IRS can collect estate tax when the assets are eventually distributed from the trust or at the non-citizen spouse’s death.
Portability is also limited for non-citizen spouses:
- A DSUE amount can be ported to a non-citizen spouse, but it comes with a major restriction.
- The ported DSUE can only be used against the tax due on the QDOT assets at the survivor’s death. It cannot be used to shelter lifetime gifts made by the non-citizen spouse .
Frequently Asked Questions (FAQs)
Q1: Is portability automatic when my spouse dies? No. It is not automatic. The executor of your deceased spouse’s estate must file IRS Form 706 to formally elect portability and transfer the unused exemption to you .
Q2: Do we have to file a tax return if my spouse’s estate is small and owes no tax? Yes. You must file a Form 706 to elect portability, even if the estate is far below the filing threshold and owes no tax. This is the only way to secure the unused exemption .
Q3: We missed the nine-month deadline. Is it too late? Maybe not. If the estate was not otherwise required to file, you have up to five years from the date of death to file the return and make the election under a special IRS relief procedure .
Q4: I remarried. What happens to the DSUE from my first deceased spouse? You lose it if your new spouse dies first. You can only use the DSUE from your “last deceased spouse.” This is a major risk of relying on portability if you remarry .
Q5: Does portability apply to my state’s estate tax? No, in most cases. The vast majority of states with an estate tax do not recognize portability. Your deceased spouse’s state exemption will likely be lost, which could create a state tax liability later .
Q6: Is the Generation-Skipping Transfer (GST) tax exemption portable? No. The GST exemption is not portable under any circumstances. If you want to plan for your grandchildren, you will likely need to use a trust to preserve both GST exemptions.
Q7: Why would I use a trust if portability is simpler? A trust provides control over who ultimately inherits the assets, protects those assets from creditors and lawsuits, and shelters all future asset growth from estate tax. Portability does none of these things .
Q8: The exemption is so high now. Why should I bother with portability? The current high exemption is temporary and will be cut in half in 2026. Electing portability now “locks in” the unused exemption at today’s high value, protecting you against future tax law changes .