Estate tax exemption portability represents a significant opportunity for married couples to preserve wealth and minimize tax burdens on their estates. When one spouse passes away, any portion of their federal estate tax exemption that remains unused can be transferred to the surviving spouse. This mechanism, introduced in 2011 and made permanent in 2013, fundamentally changed how couples approach estate planning and wealth transfer strategies.

The federal estate tax exemption has increased substantially over recent years. For 2024, the exemption stands at $13.61 million per individual, meaning a married couple can potentially shield up to $27.22 million from federal estate taxes when portability is properly elected. Without portability, a surviving spouse would be limited to their own exemption amount, potentially subjecting millions of dollars to estate taxation at rates up to 40 percent.

How Does Estate Tax Exemption Portability Work for Married Couples

Portability functions by allowing the executor of a deceased spouse’s estate to transfer the unused portion of the estate tax exemption to the surviving spouse. This transferred amount is known as the Deceased Spousal Unused Exclusion (DSUE). To claim this benefit, the executor must file IRS Form 706 (United States Estate and Generation-Skipping Transfer Tax Return) within nine months of the decedent’s death, with a possible six-month extension.

The surviving spouse can then use this DSUE amount in addition to their own exemption when making lifetime gifts or upon their own death. If the surviving spouse remarries and that subsequent spouse also predeceases them, the surviving spouse retains only the most recent deceased spouse’s DSUE amount, not a cumulative total from multiple marriages.

What Are the Requirements for Claiming Portability Benefits

Claiming portability requires specific administrative steps that must be completed timely. The most critical requirement involves filing Form 706 even when the deceased spouse’s estate falls below the filing threshold. This return must include a complete accounting of the deceased spouse’s assets and calculate the unused exemption amount available for transfer.

Both spouses must be United States citizens or residents at the time of the first spouse’s death for portability to apply. Non-citizen spouses face different rules and typically cannot benefit from portability provisions. The election must be made on a timely filed estate tax return, and while the IRS has granted relief in certain circumstances for late filings, relying on such relief involves uncertainty and potential complications.

How Do Investment and Banking Strategies Affect Estate Planning

Investment choices and banking arrangements significantly influence estate planning outcomes and the effective use of portability. Assets held in certain types of accounts, such as retirement accounts with designated beneficiaries, pass outside the probate estate but still count toward the estate tax exemption calculation. Strategic positioning of assets between spouses during their lifetimes can optimize the use of exemptions and minimize overall tax liability.

Financial services professionals often recommend maintaining detailed records of all assets, including investment portfolios, banking accounts, real estate holdings, and business interests. This documentation simplifies the estate administration process and ensures accurate calculation of the DSUE amount. Couples with substantial wealth may benefit from establishing trusts, implementing gifting strategies, or restructuring ownership of assets to maximize tax efficiency while preserving access to portability benefits.

What Happens When Portability Is Not Elected Properly

Failure to elect portability can result in significant financial consequences for surviving spouses and their heirs. Without the DSUE amount, the surviving spouse must rely solely on their individual exemption, which may prove insufficient to shelter the combined marital estate from taxation. This oversight becomes particularly costly when the surviving spouse’s estate grows through inheritance, investment returns, or other wealth accumulation.

In cases where portability was not elected timely, the IRS has provided limited relief through Revenue Procedure 2017-34, which extended the filing deadline for certain estates. However, this relief applies only to specific circumstances and requires demonstrating that the estate was not otherwise required to file. Missing the portability election cannot be corrected indefinitely, making it essential to address this matter promptly after the first spouse’s death.

How Do Savings and Financial Planning Support Portability Strategies

Effective savings strategies and comprehensive financial planning create the foundation for successful use of portability provisions. Couples should regularly review their combined net worth, including all assets and liabilities, to determine whether their estate may be subject to federal estate taxation. This assessment helps identify whether portability election will be necessary and allows time for proper planning.

Working with financial advisors, estate planning attorneys, and tax professionals ensures that portability fits within a broader wealth management strategy. These professionals can model various scenarios, project future estate values, and recommend specific actions to optimize tax outcomes. Regular updates to estate plans accommodate changes in exemption amounts, family circumstances, and financial situations, maintaining alignment between planning documents and current laws.

What Are the Limitations and Considerations for Portability

While portability provides valuable flexibility, it comes with limitations that couples must understand. The DSUE amount is not indexed for inflation after the first spouse’s death, meaning its real value may erode over time while the surviving spouse’s own exemption continues to increase. Additionally, portability applies only to the federal estate tax exemption, not to the generation-skipping transfer tax exemption, which requires different planning techniques.

State estate taxes present another consideration, as many states do not recognize portability for their own estate tax systems. Couples residing in states with separate estate taxes must plan accordingly, potentially utilizing trusts or other mechanisms to maximize both federal and state tax benefits. The interaction between portability and various trust structures requires careful analysis to avoid unintended consequences or lost opportunities for tax savings.

Estate tax exemption portability offers married couples powerful tools for wealth preservation and tax planning. By understanding the requirements, limitations, and strategic applications of portability, couples can make informed decisions that protect their assets and provide for future generations. Proper election of portability, combined with comprehensive financial planning and professional guidance, ensures that families maximize the benefits available under current tax laws while maintaining flexibility to adapt to changing circumstances.