Portability (as that term is used in estate planning) is an opportunity available to a surviving spouse to use the deceased spouse's unused federal gift or estate tax exemption. This election is made to protect the surviving spouse's estate from later owing substantial death taxes when she dies. This may be especially important if there is a future reduction in the amount of the federal estate tax exemption.
Why is Portability Important?
Under current law, a person would need more than $11.4 million (or $22.8 for a couple) in assets for his or her estate to be required to pay federal estate income tax at death. Even though no taxes may be due because of the unlimited marital deduction between the two spouses, if steps are not taken to protect any unused exemption, that amount will be lost. And if the federal exemption laws change (as they are scheduled to in 2026) the total amount available to the survivor from both the unused exemption and the then current exemption could be substantially less.
How does someone elect the Portability option?
The Portability election for large estates is made by simply filing an informational (that is, even when no tax is due) Federal Estate Tax Form 706 within two (2) years of first spouse's death (although it should be prepared when the estate is settled) specifying the balance or remaining exemption amount that is not used. Doing so will protect the surviving spouse's right to the unused exemption which will “port over” to her.
Filing the federal estate tax return to provide proof of the unused exemption may also be helpful in situations where the surviving spouse has her own assets that might have substantially increased in value and/or where she acquires new assets through remarriage.
While the need may not be apparent in many estates, if you have questions regarding Portability, please contact our experienced estate planning attorney for additional information.