How to Use Portability to Preserve Your Estate Tax Exemption

The concept of portability can be a game-changer in estate planning, especially for married couples looking to maximize their estate tax exemptions.

In this blog, we’ll dive into how portability works, why it’s crucial for your estate plan, and the steps you can take to utilize it effectively.

Understand portability

Portability refers to the ability of the surviving spouse in a marriage to use the unused portion of the deceased spouse’s federal estate tax exemption. It is significant because it effectively doubles the amount that can be transferred tax-free upon the second spouse’s death. Without portability, upon the first spouse’s death, any unused exemption would be lost, potentially leading to higher taxes.

How portability works

When one spouse dies, their estate can claim their federal estate tax exemption. This exemption can be passed or “ported” to the surviving spouse if it isn’t fully used.

To elect portability, the process involves filing an estate tax return for the deceased spouse, even if one isn’t usually required. This election must be made within nine months of the date of death, extendable by six months. For estates not required to file an estate tax return, the IRS provides an extended deadline for electing portability—up to five years after death—under Revenue Procedure 2022-32. However, this relief is not automatic and requires following specific IRS procedures.

Filing for portability is crucial because it allows the surviving spouse to add the unused exemption to their own, which can be used when they pass away.

Based on current inflation estimates, the federal estate tax exemption amount for individuals who pass away in 2025 is $13.99 million, up from $13.61 million in 2024. For married couples, the exemption amount is $27.98 million.

Example: How portability works in practice

To illustrate how portability functions in real-world scenarios, consider the following examples:

Example: John leaves everything to Jane – Full portability, no tax

• John’s total estate : $20 million
• John’s bequest : The entire $20 million goes to Jane.
• Estate tax impact : $0 (Unlimited marital deduction applies).
• Unused exemption : Since John didn’t need to use any of his $13.99 million exemption, the entire amount is portable to Jane.
• Portability outcome : Jane can elect to inherit John’s full $13.99 million exemption, giving her a total exemption of $27.98 million (her own $13.99M + John’s unused $13.99M).

This scenario is ideal for maximizing the exemption available to the surviving spouse.

The benefits of electing portability

Electing portability offers several advantages. It simplifies estate planning since there’s no need for complex trust setups like bypass trusts to utilize both exemptions. This can reduce administrative burdens and costs.

It provides flexibility. The surviving spouse can still use their exemption for lifetime gifts or bequests, keeping the ported amount intact for their estate.

However, portability doesn’t extend to state-level estate taxes, where applicable. It applies only to the federal estate tax exemption.

Many states have their own estate or inheritance taxes, and most do not allow portability. Check your state’s laws to determine if additional planning is necessary to minimize state tax burdens.

Portability does not cover the generation-skipping transfer (GST) tax exemption. The generation-skipping transfer (GST) tax exemption is a tax benefit allowing individuals to transfer assets to heirs at least two generations below them, like grandchildren, without incurring federal GST taxes up to a specific limit.

In 2025, the GST exemption is $13.99 million per individual, which may allow for significant asset transfers without incurring GST taxes. This exemption prevents wealthy individuals from avoiding estate taxes by skipping generations when transferring wealth.

Unlike the estate tax exemption, the generation-skipping transfer (GST) tax exemption is not portable. If the first spouse to die does not use their GST exemption, it is lost. Estate planning strategies, like a dynasty trust, may be necessary to preserve this exemption for future generations.

Navigate the process of electing portability

To elect portability, the estate executor must file IRS Form 706. This form needs to be filed in a timely manner, meaning within nine months of the date of death, with a potential six-month extension if requested. This filing is necessary even if no tax is due because it’s the only way to officially elect portability.

A common mistake is not filing this form because people mistakenly believe no estate tax return is needed. Incorrect or late filing can lead to the loss of this significant tax-saving opportunity. It’s advisable to consult with a tax professional or estate planning attorney to handle this process correctly.

Potential pitfalls

One of the biggest pitfalls is the assumption that portability automatically transfers without action. It does not.

Another is missing the filing deadline, which is non-negotiable without a formal extension.

Proactive estate planning is key to avoiding these issues. Keep your estate plan updated, particularly after significant life events like marriage or remarriage. Regular consultations with estate planning professionals can help keep everything in check.

The role of estate planning professionals

Navigating estate tax laws and the intricacies of portability can be daunting. Here’s where estate planning attorneys or tax advisors come into play. They can help in:

• Filing the necessary forms accurately and on time.
• Advising on whether to use trusts or other strategies alongside or instead of portability.
• Keeping up with changes in estate tax laws that might affect your plan.
• Planning for potential remarriages or other life events that could impact estate tax exemptions.

Dealing with estate taxes without professional guidance can lead to costly mistakes.

Final thoughts

Portability can significantly enhance your estate plan, providing a straightforward way to double down on tax exemptions. It’s beneficial for passing more wealth to your heirs with fewer tax implications. However, the benefits depend on taking the proper steps at the right time. Always consider professional advice to navigate the complexities of estate laws, which can change.

Estate planning is about ensuring your wishes are carried out as you intend. By understanding and utilizing portability, you can substantially impact how much of your estate remains intact for your loved ones.