By Andrew Bellm
Professionals advising high-net-worth individuals or surviving spouses should be well-versed in the strategic use of portability. Portability allows a surviving spouse to utilize any unused portion of their deceased spouse’s federal estate and gift tax exemption to minimize the surviving spouse’s estate and gift tax burden. Portability effectively allows a married couple to fully utilize the estate and gift tax exemption for both spouses without having to equalize assets between the spouses. To elect portability, a timely and properly prepared Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) must be filed with the IRS.
What is Portability?
Under the Internal Revenue Code, each U.S. citizen or resident has a lifetime exemption from federal estate and gift taxes ($15 million per person beginning in 2026). If a spouse dies without using their entire exemption, the unused portion (the Deceased Spousal Unused Exclusion Amount, or DSUE) can be transferred to the surviving spouse through portability, effectively doubling the amount the surviving spouse can shelter from estate tax.
Why File Form 706 if No Tax is Due?
Even when no estate tax is owed due to the size of the estate or the marital deduction, filing Form 706 is essential if the estate wishes to elect portability. Failure to file forfeits the DSUE, potentially increasing the surviving spouse’s estate tax exposure. An executor should file for portability if:
- The Executor anticipates that the surviving spouse’s estate will exceed the exemption amount, either due to increase in asset values or due to the decrease in estate and gift tax exemption.
- Estate and gift tax exemptions may fall below the surviving spouse’s projected net worth at the surviving spouse’s death.
- The Executor wishes to document cost basis in certain assets and start the IRS statute of limitations on an IRS challenge to those asset values.
When making a determination of whether to file a Form 706 for portability purposes, the Executor is balancing the cost of filing the return (accounting fees, appraisal fees, etc.) with the likelihood that the surviving spouse will be in an estate taxable situation at his or her death. Depending on the surviving spouse’s net worth, it may or may not make sense to file the Form 706 for portability.
Filing Requirements
- Deadline: Form 706 must be filed within nine months of the decedent’s date of death. A six-month extension is available by filing Form 4768.
- Content: The return must be complete and properly executed, even if the estate is below the filing threshold. Executors may opt for simplified valuation for assets passing outright to the spouse, under Rev. Proc. 2022-32.
Late Portability Elections
The IRS may grant relief for late portability elections under Rev. Proc. 2022-32, allowing estates to file Form 706 up to five years after the date of death, provided certain conditions are met, including that the estate was not otherwise required to file Form 706.
Practical Implications
Advisors should encourage all eligible estates to consider filing for portability. Filing Form 706 to elect portability ensures the surviving spouse preserves the full exemption amount available to them, offering significant estate tax savings and planning flexibility. Filing Form 706 for portability is a proactive step that can yield substantial future tax benefits. Estate planners, CPAs, and attorneys should consider the pros and cons of portability filing for any estate with significant assets.