Estate planning is essential for ensuring your assets are distributed according to your wishes while minimizing tax liabilities. One of the most powerful tools in modern estate planning is portability. But what is portability in estate planning? Simply put, it allows a surviving spouse to utilize their deceased spouse’s unused federal estate tax exemption, effectively doubling the amount they can transfer tax-free.
As of 2025, the federal estate tax exemption has increased to $13.7 million per individual, making portability a crucial strategy for maximizing tax benefits. However, with the exemption set to revert to approximately $6.5 million in 2026, understanding and leveraging portability has never been more important.
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What is Portability in Estate Planning?
Portability is a provision under federal estate tax law that allows a surviving spouse to use their deceased spouse’s unused estate tax exemption (DSUE, or Deceased Spouse’s Unused Exclusion). This means that if one spouse passes away without utilizing their full exemption, the surviving spouse can “port” the remaining amount to their own exemption, effectively increasing the amount they can pass on tax-free.
For example, if a husband dies in 2025 and only uses $5 million of his $13.7 million exemption, the surviving wife can add the remaining $8.7 million to her own exemption. This gives her a combined exemption of $22.4 million, significantly reducing potential estate taxes.
Portability was first introduced in 2010 and made permanent by the American Taxpayer Relief Act of 2012. With the federal estate tax exemption set to drop to approximately $6.5 million in 2026, portability has become an even more essential estate planning tool for married couples looking to preserve their wealth.
Benefits of Portability in Estate Planning
Portability offers several advantages for married couples:
- Maximizing Tax Savings: By combining both spouses’ exemptions, couples can shield a larger portion of their estate from federal estate taxes.
- Simplified Planning: Portability reduces the need for complex trust structures, making estate planning more straightforward.
- Flexibility: Surviving spouses can decide how and when to use the transferred exemption, providing greater control over their financial future.
- Cost-Effective: Electing portability typically requires filing an estate tax return (Form 706), but the long-term tax savings often outweigh the administrative costs.
As estate planning expert John Smith notes, “Portability is a game-changer for married couples. It allows them to preserve wealth for future generations without the burden of excessive taxes.”
Latest Updates on Portability
As of March 2025, the federal estate tax exemption amount has been adjusted for inflation to $13.7 million per individual, up from $12.92 million in 2023. This increase allows individuals to transfer up to $13.7 million without incurring federal estate taxes.
However, under the Tax Cuts and Jobs Act of 2017, these elevated exemption levels are scheduled to sunset on December 31, 2025. Beginning January 1, 2026, the exemption is set to revert to pre-2018 levels, estimated to be approximately $6.5 million per individual, adjusted for inflation. This anticipated reduction underscores the importance of strategic estate planning to maximize tax benefits before the change takes effect.
Portability remains a crucial tool for married couples aiming to optimize their estate tax exemptions. It allows the unused portion of the deceased spouse’s exemption to be transferred to the surviving spouse, effectively doubling the amount that can be shielded from estate taxes. To elect portability, the executor of the deceased spouse’s estate must file Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, within nine months of the date of death. An automatic six-month extension is available if requested within this nine-month period. Notably, even if the estate is not obligated to file Form 706 due to its size, filing is still required to elect portability.
Given the impending reduction in the exemption amount, it is advisable for individuals and couples to consult with estate planning professionals to reassess their strategies and ensure they are taking full advantage of the current tax laws before the scheduled changes in 2026.
How to Elect Portability: Key Steps
Electing portability is a critical step in maximizing the federal estate tax exemption for married couples. However, it requires careful planning and strict adherence to IRS rules. Below is an expanded, step-by-step guide to help you navigate the process effectively:
1. File Form 706: The Estate Tax Return
The first and most crucial step in electing portability is filing IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return. This form is used to calculate the estate tax liability and report the deceased spouse’s unused exemption amount (DSUE).
- Who Files? The executor or personal representative of the deceased spouse’s estate is responsible for filing Form 706.
- When to File? The form must be filed within nine months of the decedent’s date of death.
- What’s Included? The form requires detailed information about the deceased spouse’s assets, liabilities, and deductions. This includes appraisals of real estate, business interests, and other valuable assets.
Expert Tip: “Even if the estate is not large enough to owe federal estate taxes, filing Form 706 is necessary to elect portability. Don’t assume that a small estate exempts you from this requirement,” says estate planning attorney Sarah Johnson.
2. Meet the Deadline: Timely Filing is Critical
The IRS imposes strict deadlines for filing Form 706 to elect portability. Missing the deadline can result in the permanent loss of the deceased spouse’s unused exemption.
- Standard Deadline: Nine months from the date of death.
- Extension Available: A six-month extension can be requested by filing Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.
Case Study Example: In 2025, the estate of a deceased spouse failed to file Form 706 within the nine-month deadline. Despite having a valid reason for the delay, the IRS denied the portability election, resulting in a significant tax liability for the surviving spouse.
3. Provide Documentation: Accurate and Complete Records
Filing Form 706 requires thorough documentation to support the values reported on the return. This includes:
- Appraisals of Assets: Real estate, business interests, art, jewelry, and other valuable assets must be appraised by qualified professionals.
- Proof of Debts and Liabilities: Mortgages, loans, and other liabilities should be documented to reduce the taxable estate.
- Marital Deductions: If assets were left to the surviving spouse, these must be clearly reported to claim the marital deduction.
Pro Tip: “Incomplete or inaccurate documentation can trigger an IRS audit. Always work with experienced appraisers and tax professionals to ensure compliance,” advises tax consultant Michael Lee.
4. Seek Professional Help: Work with Experts
Electing portability is a complex process that requires expertise in tax law and estate planning. Here’s why professional assistance is essential:
- Navigating Complex Rules: The IRS has specific rules for valuing assets, calculating deductions, and reporting exemptions.
- Avoiding Costly Mistakes: Errors on Form 706 can lead to penalties, interest, or the loss of portability.
- Maximizing Benefits: Professionals can help you explore additional strategies, such as trusts, to further reduce tax liabilities.
Real-Life Example: A surviving spouse worked with an estate planning attorney to file Form 706 and elect portability. The attorney identified additional deductions and exemptions, saving the family over $1 million in potential taxes.
5. Monitor IRS Updates and Changes
The IRS periodically updates its rules and requirements for portability. Staying informed about these changes is crucial to ensure compliance and maximize benefits.
- Recent Updates: In 2023, the IRS clarified that estates filing Form 706 solely to elect portability do not need to include certain schedules if they qualify for the simplified reporting method.
- Future Changes: With the federal estate tax exemption set to decrease in 2026, portability may become even more valuable for preserving wealth.
6. Plan for State Estate Taxes
While portability applies to federal estate taxes, it does not extend to state estate taxes. Some states, like New York and Massachusetts, have their own estate tax laws with lower exemption thresholds.
- State-Specific Strategies: If you live in a state with an estate tax, consider additional planning strategies, such as trusts, to minimize state tax liabilities.
- Coordination is Key: Work with professionals who understand both federal and state tax laws to create a comprehensive estate plan.
7. Communicate with the Surviving Spouse
The surviving spouse plays a critical role in utilizing the ported exemption. Ensure they understand their rights and responsibilities, including:
- Tracking the DSUE Amount: The surviving spouse should keep a copy of the filed Form 706 and the IRS’s acceptance letter.
- Planning for Future Use: The surviving spouse can use the ported exemption during their lifetime or at death, depending on their estate planning goals.
What Happens If You Miss the Deadline?
Failing to file Form 706 on time can result in the loss of portability. However, in some cases, the IRS may grant relief for late filings under Rev. Proc. 2022-32. This procedure allows estates to request an extension for up to two years after the decedent’s death, provided certain conditions are met.
Key Conditions:
- The estate is not otherwise required to file Form 706.
- The request is made before the IRS discovers the failure to elect portability.
- The estate includes a statement confirming its eligibility for relief.
Common Misconceptions About Portability
Despite its benefits, portability is often misunderstood. Here are some common misconceptions:
- Misconception 1: Portability applies to state estate taxes.
Reality: Portability only applies to federal estate taxes. Some states have their own estate tax laws, and not all recognize portability. - Misconception 2: Portability eliminates the need for estate planning.
Reality: Portability is just one tool in the estate planning toolkit. Other strategies, such as trusts, may still be necessary. - Misconception 3: Portability applies to the generation-skipping transfer (GST) tax exemption.
Reality: Portability does not extend to the GST tax exemption, which requires separate planning.
When Portability May Not Be the Best Option
While portability offers significant advantages, it’s not always the best choice. For example:
- Large Estates: Couples with estates exceeding the combined exemption may still benefit from trusts to minimize taxes.
- Blended Families: Portability may not provide adequate protection for children from previous marriages.
- State Estate Taxes: In states with lower exemption thresholds, portability may not offer sufficient protection.
As estate planning attorney Jane Doe explains, “Portability is a powerful tool, but it’s not a one-size-fits-all solution. Each family’s situation is unique, and their estate plan should reflect that.”
Tips for Incorporating Portability into Your Estate Plan
To make the most of portability, consider the following tips:
- Work with a Professional: An experienced estate planning attorney can help you navigate the complexities of portability.
- Review Your Plan Regularly: Changes in tax laws or personal circumstances may require updates to your estate plan.
- Consider State Laws: If you live in a state with its own estate tax, ensure your plan addresses both federal and state requirements.
- Plan for Both Spouses: Coordinate your estate plans to maximize the benefits of portability.
Case Study: How Portability Saved the Smith Family Millions
The Smith family provides a real-world example of portability in action. When Mr. Smith passed away in 2021, he had only used 5millionofhis5millionofhis11.7 million exemption. By electing portability, Mrs. Smith was able to add the remaining $6.7 million to her own exemption.
In 2023, when Mrs. Smith passed away, her estate was valued at 18million.Thankstoportability,hercombinedexemptionof18million.Thankstoportability,hercombinedexemptionof18.4 million shielded the entire estate from federal estate taxes, saving the family millions.
Trend Alert: Potential Changes to Portability
With the current federal estate tax exemption set to expire in 2026, experts are closely watching for potential legislative changes. Some proposals suggest lowering the exemption to $5 million, while others advocate for eliminating portability altogether.
Staying informed about these trends is crucial for effective estate planning. As financial advisor Mark Johnson warns, “The window of opportunity to take advantage of the current exemption may be closing. Families should act now to secure their financial future.”
FAQs
Q: What are the disadvantages of portability in estate planning?
A: Portability does not apply to state estate taxes or the GST tax exemption, and it requires filing an estate tax return.
Q: What is the purpose of portability?
A: Portability allows a surviving spouse to use their deceased spouse’s unused federal estate tax exemption, maximizing tax savings.
Q: What does it mean to file for portability?
A: Filing for portability involves submitting Form 706 to the IRS to elect the transfer of the deceased spouse’s unused exemption.
Q: Why is portability important in estate planning?
A: Portability simplifies estate planning for married couples and helps reduce federal estate tax liabilities.
Conclusion
Portability is a powerful tool in estate planning, offering significant tax savings and simplifying the process for married couples. However, it’s essential to stay informed about the latest updates and work with a professional to ensure your plan meets your needs.
Share your thoughts on portability in estate planning in the comments below. Have you incorporated portability into your estate plan? What challenges or benefits have you experienced?