How Portability Can Help Maximize Your Gift and Estate Tax Exemptions

For married couples with substantial wealth, portability can be a valuable planning strategy that can reduce or eliminate federal gift and estate taxes. This provision allows the executor of a deceased spouse to transfer any unused estate tax exemption to the surviving spouse. Though extremely beneficial, portability is not automatic and requires careful following of rules and deadlines to be effective. 

While portability allows a surviving spouse to utilize their deceased spouse’s unused federal gift and estate tax exemption, it’s crucial to understand that this concept generally does not extend to state-level taxes. Estate tax laws and portability provisions can differ slightly from state to state and change frequently, making it vital to consult with a qualified estate planning attorney or tax advisor familiar with the laws in your specific state. 

What is portability?

Portability, often referred to as the Deceased Spouse Unused Exclusion (DSUE), is a key feature of federal estate tax law that permits a surviving spouse to utilize the unused portion of their deceased spouse’s estate tax exemption. For 2025, the estate tax exemption is $13.99 million per individual.  

By electing portability, the surviving spouse can potentially increase their estate tax exemption. This means that if a deceased spouse used only $5 million of their exemption during life, their remaining $8.99 million can be added to the surviving spouse’s exemption, creating a total exemption of $22.98 million.  

Permanent tax law changes under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has made changes to the U.S. tax code, especially affecting the federal estate tax exemptions. The exemption, which was set to sunset on Dec. 31, 2025, at an expected $7 million under the Tax Cuts and Jobs Act (TCJA), has been permanently increased to $15 million per individual and $30 million for married couples, starting Jan. 1, 2026.   

Benefits for spouses

Portability can provide long-term tax savings and simplify estate planning for surviving spouses and beneficiaries. By preserving the unused exemption, it shields more of the surviving spouse’s estate from future estate taxes. This can be especially advantageous if the estate is expected to grow in value. 

It also reduces the need for complex trust structures or asset transfers. The surviving spouse can use the ported exemption to make larger tax-free gifts during their lifetime, potentially reducing their taxable estate. 

Requirements for electing portability

To take advantage of portability, the estate’s executor or personal representative must file IRS Form 706, federal estate tax return. This must be filed within nine months of the date of the deceased spouse’s death, although a six-month extension can be requested by filing Form 4768 by the original due date, bringing the due date in most cases to 15 months after death.     

If the estate is not otherwise required to file a Form 706 (because the value of the gross estate and adjusted taxable gifts during life is below the filing threshold), a simplified method for electing portability is available. In these cases, the executor has up to 5 years from the anniversary of the decedent’s death to file.   

What happens if the election deadline is missed?

Failing to elect portability can result in the permanent loss of the deceased spouse’s unused exemption. This can lead to a larger estate tax bill for their heirs. It can also limit future planning options and may require the use of more complicated strategies to reduce tax exposure. 

Even if no estate tax is due, the return must explicitly state it is being filed to elect portability. Missing the key deadlines means the opportunity is lost, and the unused exemption cannot be recovered. A costly IRS revenue ruling would be needed to request additional time when special facts and circumstances are present.  

Important considerations

• Portability is not automatic. A formal election must be made by filing Form 706, which can bring tax preparation charges. Keep in mind that these charges can be more than offset by the 40% estate tax savings additional exemption can bring.   

• Potential future changes. While the current exemption amounts are significant, tax laws often change, as demonstrated by the recent OBBA provisions, which superseded the TCJA Sunset provisions, set to expire at the end of 2025. 

• State taxes. Portability only applies to federal estate tax and may not impact state-level estate taxes, which can have different exemption limits. 

• No generation-skipping transfer tax portability: The generation-skipping transfer (GST) tax exemption is not portable between spouses.  

Is portability right for your estate plan?

While portability offers flexibility and potential tax advantages, it may not be right for every family. There may be scenarios where traditional estate planning tools offer greater benefits.  

Due to the complexity of the estate tax laws and potential for significant tax consequences, it’s critical to consult with an experienced estate planning attorney or tax professional to ensure the portability election is made correctly and effectively integrated into your overall estate plan.  

At Mercer Advisors, our in-house estate planning strategists work directly with our wealth advisors, tax team, trust specialists, insurance and financial planning specialists to fulfill a singular goal — to help protect your loved ones and the wealth you’ve worked so hard to build. If you’re not a client and would like to learn more about our estate planning services, let’s talk. 

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