How to Minimize the (Voluntary) Federal Estate Tax with Portability

Most people may be surprised to learn that some consider the federal estate tax voluntary. Estate planning attorneys used to say, “You only pay if you do not plan.” The relatively recent introduction of portability provides yet another planning tool available to married couples to minimize or eliminate estate taxation. Portability allows a surviving spouse to “pocket” and save their deceased spouse’s unused exclusion amount (technically called the deceased spousal unused exclusion amount, or DSUE) and add it to their exemption. Here is how portability works. 

If the taxable estate of the first spouse to die is below the then-current federal gift and estate tax exemption limit at the time of their death, or if the deceased spouse’s entire estate passes to the surviving spouse under the marital deduction, the DSUE can be transferred (or ported) to the surviving spouse. Portability requires that an estate tax return be timely filed upon the first spouse’s death. Because of portability, the surviving spouse can use their federal estate tax exemption amount plus the DSUE to minimize or avoid estate taxes at the time of death.

The Key Takeaways

  • Everyone still needs lifetime estate planning to protect themselves, their families, and their assets (money and property). Estate planning is not just about tax planning—it is also about communicating your wishes to loved ones, saying what happens to you and your assets during your incapacity and at death, leaving a legacy, and helping avoid conflict when you are no longer around.
  • Failure to use both spouses’ federal estate tax exclusions may cause an unnecessarily high tax bill for high-net-worth married couples.  
  • Portability lets married couples use both of their estate tax exclusions.
  • Portability is not automatic. An estate tax return must be filed after the death of the first spouse, generally within nine months.

How Portability Works

With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, the federal estate tax exemption doubled to $10 million adjusted for inflation. With the passing of Big Beautiful Bill, the exemption will become 15 million on January 1, 2026 (to be indexed for inflation for future years).  (Most families do not worry about federal estate taxes.).   A surviving spouse may use only the DSUE amount from their most recently deceased spouse and cannot combine or accumulate DSUE amounts from multiple prior spouses. Here is an example of the interplay between DSUE and remarriage:

Sue is married to Bob, who passed away in 2020 with $5 million of unused federal estate tax exemption. She filed a timely Form 706 and elected portability, preserving Bob’s $5 million DSUE. A few years later, in 2024, Sue married Phil. When Phil died in 2025, he had a DSUE of only $2 million to transfer. Sue chose not to file an estate tax return for Phil, assuming that she could continue to rely on Bob’s larger DSUE. 

However, under the Internal Revenue Service’s portability rules, the ability to use a DSUE is based solely on the identity of the most recently deceased spouse, not on whether a portability election has been made. Because Phil is now Sue’s most recently deceased spouse, she automatically loses access to Bob’s $5 million DSUE, regardless of her decision not to file a Form 706 for Phil. 

This outcome underscores how remarriage and the timing of a subsequent spouse’s death can inadvertently eliminate a previously secured exclusion amount, even when no action has been taken.

State Estate Tax Considerations

12 States have their own estate tax:  Maryland, D.C., New York, Illinois, Oregon, Washington, Connecticut, Vermont, Hawaii, Minnesota, Rhode Island, Massachusetts.  So, even if there is no Federal estate tax, if you live in one of these states or if you own real property in one of these states, your estate may owe state estate tax when you die.  For instance, Maryland has an exemption of $5,000,000 per person, while Massachusetts has an exemption of $2,000,000 per person.  Only 2 of these states, Hawaii and Maryland, allow a surviving spouse to receive (or inherit) his or her deceased spouse’s unused state estate tax exemption.  In the other 10 states, if the exemption is not used when the first spouse dies, the exemption is lost and cannot be used when the surviving spouse dies.

It is very important, if you live in one of these 12 states, or if you own real property in one of these 12 states, that you plan on how you will use the state level exemption when the first spouse dies.

What You Need to Know

Portability is an essential component of estate tax planning for married couples after the first spouse passes away. However, trust planning during the married couple’s life should be used with or without portability and is still highly relevant for couples with an estate of any size. 

When there are children involved, especially if they are from a previous marriage or relationship, trust planning can allow the first spouse who dies to provide for the surviving spouse and maintain control over who will eventually receive the remaining balance of their estate. 

In addition, trust planning can protect assets from a beneficiary’s irresponsible spending, creditors, medical crises, lawsuits, and divorce proceedings, allowing the assets to remain within the family for generations to come. Trust funds can also provide for a special needs beneficiary without that beneficiary losing valuable government benefits.

Actions to Consider

  • Ask your estate planning team if you need to be concerned about estate taxes beyond the federal level of taxation. Some states have their own estate or inheritance tax, often with a lower exemption than the federal estate tax. An estate may be subject to state taxes even though it is exempt from federal taxes.
  • When your spouse dies, ask your estate planning attorney whether using portability is appropriate for you. Most married couples can benefit from portability, even if only as a preventive estate planning measure. The value of their assets may exceed an applicable exemption amount before they die.
  • If your subsequent spouse is ill, ask your estate planning attorney if you should use any remaining exemption amount you may have from a previous spouse to make lifetime gifts to beneficiaries.
  • When your spouse dies and you want to port their unused exemption amount, be sure the estate tax return (Form 706) is prepared and timely filed by a qualified professional, such as an estate planning attorney, to elect portability. 
  • Ask your estate planning team about nontax trust protections such as asset protection, incapacity planning, and probate avoidance.
Share This Story, Choose Your Platform!

Subscribe

Receive our new blog articles in your email inbox.
  • This field is for validation purposes and should be left unchanged.

Categories

Recent Posts

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram