© 2026 Wealth Care Lawyer — Klaus Gottlieb, Esq. Serving the California Central Coast.
Jurisdiction: Federal; California conformity Primary Statutes: I.R.C. §§ 2010, 2010(c)(5) (Portability); § 2056 (Marital Deduction); § 2056(b)(7) (QTIP); § 1014 (Basis Step-Up); § 2631 (GST Exemption); Treas. Reg. § 20.2010-2 (Portability Election) IRS Forms: Form 706 (Estate Tax Return; Portability Election) Last Reviewed: 2026 Category: Estate Tax | Trusts | Marital Planning
Federal estate tax planning for married couples involves three principal mechanisms: portability of the deceased spousal unused exemption, the bypass (credit shelter) trust, and the QTIP (Qualified Terminable Interest Property) trust. These are not interchangeable alternatives. They solve different problems, produce different income tax outcomes, and are appropriate at different wealth levels.
The planning conversation looks very different depending on where a couple sits relative to the federal exemption. For couples whose combined estate is well below the exemption, estate tax is not the primary concern — but portability may still be worth preserving. For couples approaching the exemption — a category that has expanded significantly as real estate and investment portfolios have appreciated, and that may expand further if current exemption levels are reduced — the planning choices have real dollar consequences. For couples clearly above the exemption, all three mechanisms are typically deployed together.
The exemption uncertainty that dominated planning conversations from 2017 through 2025 has been resolved. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently extended and increased the federal estate, gift, and GST tax exemptions. Effective January 1, 2026, the exemption is $15 million per individual ($30 million per married couple), indexed for inflation beginning in 2027 with 2025 as the base year. Unlike the TCJA exemption increase, the OBBBA provision contains no sunset clause. A future Congress could still reduce the exemption, but there is no scheduled expiration. The planning urgency that drove accelerated gifting in 2024 and 2025 has dissipated — which means the planning conversation can shift from timing to structure.
The federal estate tax applies to the taxable estate of every U.S. decedent. The tax is offset by a unified credit equivalent to the Basic Exclusion Amount (BEA) — the amount that can pass free of estate tax. Under the OBBBA, the BEA is $15 million per individual effective January 1, 2026, indexed for inflation beginning in 2027. Each individual has their own BEA; married couples, between them, have two — a combined $30 million before any portability or trust planning.
Without planning, the first spouse to die often transfers their entire estate to the survivor, either outright or through a simple trust. This leaves the deceased spouse’s BEA unused at the first death. If the surviving spouse’s estate later exceeds their own BEA, that unused exemption is wasted — unless portability or a bypass trust captures it.
Portability, enacted in 2010 and made permanent in 2013, allows the estate of the first spouse to die to transfer that spouse’s unused BEA — called the Deceased Spousal Unused Exemption Amount (DSUEA) — to the surviving spouse. The surviving spouse adds the DSUEA to their own BEA and can use the combined amount against their own taxable estate or lifetime gifts.
Portability is not automatic. It requires a timely filed Form 706 federal estate tax return, even if the estate is below the filing threshold and no tax is owed. The filing deadline is nine months from the date of death, with a six-month extension available. Under Rev. Proc. 2022-32, a simplified late portability election is available within five years of the decedent’s death for estates that were not otherwise required to file.
A bypass trust is an irrevocable trust funded at the first death with assets equal to the deceased spouse’s BEA. Under the OBBBA, that amount is $15 million per individual in 2026, indexed for inflation thereafter. The trust can provide income and HEMS (health, education, maintenance, and support) distributions to the surviving spouse during their lifetime, but the assets pass to named remainder beneficiaries without estate tax at the second death.
The bypass trust predates portability and accomplishes the same basic goal — preserving both spouses’ exemptions — through a trust structure rather than an IRS election. Its advantages over portability are specific and meaningful in certain situations; its disadvantages are equally specific.
The QTIP trust qualifies for the estate tax unlimited marital deduction under I.R.C. § 2056, deferring all estate tax on trust assets to the surviving spouse’s death. Unlike an outright bequest to the surviving spouse, however, the QTIP trust locks in the remainder beneficiaries at the first death — the surviving spouse receives income and HEMS, but cannot redirect the principal to different beneficiaries. At the surviving spouse’s death, QTIP assets are included in their taxable estate under I.R.C. § 2044 and receive a step-up in cost basis to fair market value at that date under I.R.C. § 1014.
The QTIP election — made by the executor on Form 706 — is irrevocable once made.
Portability does not extend to the generation-skipping transfer (GST) tax exemption. The OBBBA raised the GST exemption to $15 million per individual in 2026, on the same terms as the estate and gift tax exemption, and indexed it for inflation. But like the pre-OBBBA exemption, it cannot be ported to a surviving spouse. If the first spouse to die has GST exemption remaining, it must be allocated to a trust at the first death — a bypass trust or QTIP trust with a reverse QTIP election — or it is permanently lost.
Estate tax planning is not uniform. The appropriate strategy depends significantly on where the couple’s combined estate sits relative to the applicable exemption. The following framework is a starting point; individual facts always govern.
For most couples in this category, federal estate tax is not an immediate concern under current law. With the OBBBA raising the combined exemption to $30 million for married couples — and indexing it for inflation — the population subject to federal estate tax has narrowed considerably. The primary planning objectives here are probate avoidance, incapacity planning, and efficient asset transfer.
That said, two issues warrant attention even in this tier.
Portability as insurance. Even if the surviving spouse’s estate is unlikely to approach the exemption, filing Form 706 to preserve the DSUEA costs relatively little and provides protection against significant future appreciation — real estate, concentrated stock, business interests — and against a future Congress reducing the exemption. The OBBBA contains no sunset, but legislative risk is never zero. A surviving spouse holding a DSUEA has a valuable asset. One who never filed does not.
The legislative caveat. “Permanent” in tax law means no scheduled expiration, not immunity from future change. The OBBBA raised and locked in the exemption as of 2026; a future Congress operating under different fiscal conditions could revise it downward. Couples in the $15–$30 million range should be aware that their current federal exemption status is comfortable under current law but not guaranteed in perpetuity.
📌 PLANNING NOTE: Filing Form 706 solely to elect portability is inexpensive relative to the protection it provides. For any estate where there is meaningful appreciated property, business interests, or real estate, the election should be made as a matter of routine unless there is a specific reason not to.
This is where planning choices carry real dollar consequences, and where the decision between portability and a bypass trust is most actively debated. Couples in this range may or may not owe estate tax depending on future appreciation, future exemption levels, and which spouse survives and for how long.
The core tradeoff is between estate tax efficiency (bypass trust) and income tax basis step-up (portability or QTIP trust):
| Situation | Preferred Approach | Key Reason |
|---|---|---|
| Simple family, modest appreciation | Portability election | Low cost, preserves step-up |
| Blended family, any wealth level | QTIP trust | Locks in remainder beneficiaries |
| High-appreciation assets, taxable estate likely | Bypass trust or bypass + QTIP | Removes appreciation from survivor’s estate |
| High-appreciation assets, estate tax not certain | QTIP trust | Defers tax, preserves step-up, locks beneficiaries |
| GST planning for grandchildren | Bypass trust with GST allocation | Portability does not transfer GST exemption |
| Non-citizen surviving spouse | QDOT required | Marital deduction unavailable for non-citizen spouse outright |
At this level, estate tax liability at the second death is close to certain absent planning. The goal shifts from preservation of optionality to active reduction of the taxable estate. Typically all three mechanisms are deployed:
The BEA is indexed for inflation each year. The DSUEA is not. It is fixed at the amount calculated when the deceased spouse’s estate tax return is filed and does not increase thereafter. A surviving spouse who sits on a large DSUEA for many years watches its real purchasing power — and therefore its effective exemption value — erode annually. This creates a planning incentive to use the DSUEA through lifetime gifts sooner rather than later.
A surviving spouse who remarries and is later survived by the new spouse can only use the last deceased spouse’s DSUEA. The DSUEA from the first spouse is permanently lost upon the death of the second spouse, regardless of its size. This has practical implications:
One of portability’s practical advantages is in IRA and retirement account planning. Before portability, funding a bypass trust with IRA assets required naming the trust as beneficiary — a structurally complex arrangement with adverse income tax consequences if not carefully drafted. Portability allows the surviving spouse to execute a spousal IRA rollover (deferring required minimum distributions under their own life expectancy) while still capturing the deceased’s unused BEA through the DSUEA. The two planning objectives — income tax deferral on retirement assets and estate tax exemption preservation — no longer require a forced choice.
This is the most consequential technical distinction between the two structures and the one most frequently misunderstood.
Bypass trust assets are not included in the surviving spouse’s estate at the second death. They bypass it — hence the name. This means they do not receive a step-up in basis under I.R.C. § 1014 at the surviving spouse’s death. Assets in a bypass trust carry the basis they had at the first spouse’s death (stepped up to that date’s fair market value) and do not benefit from any subsequent appreciation. Beneficiaries who sell those assets after the second death pay capital gains on all appreciation that occurred during the surviving spouse’s lifetime.
QTIP trust assets are included in the surviving spouse’s taxable estate under I.R.C. § 2044. That inclusion is a tax cost — it may push the surviving spouse’s estate above the exemption and generate estate tax. But it also means those assets receive a full basis step-up at the surviving spouse’s death. For beneficiaries who plan to sell inherited assets, this eliminates the capital gains tax on appreciation that accrued during the surviving spouse’s lifetime.
The right answer depends on the relative magnitude of the estate tax cost and the capital gains benefit — which requires actual numbers, not rules of thumb.
⚠️ CRITICAL DISTINCTION: In a low-estate-tax or no-estate-tax scenario (estate below or close to the combined exemption), the basis step-up advantage of a QTIP trust over a bypass trust is often decisive. In a clearly taxable estate, the estate tax cost of QTIP inclusion at the second death must be weighed against the basis step-up benefit. There is no universal answer; the comparison requires modeled projections.
A Clayton QTIP trust is a drafting variant that preserves decision-making flexibility until after the first death. The trust is structured so that the executor — after reviewing the specific tax situation at the time of the first death — can decide what portion of the trust assets to treat as QTIP (qualifying for the marital deduction) and what portion to fund directly into a bypass trust or pass outright to descendants.
This flexibility is valuable because the optimal allocation between QTIP and bypass treatment often cannot be determined until the first spouse has died and the applicable law and estate values are known. A Clayton QTIP trust allows the executor to optimize the allocation at that point, rather than locking in a predetermined split. The IRS has approved this structure in published guidance.
Portability and the unlimited marital deduction are available only when the surviving spouse is a U.S. citizen. A bequest to a non-citizen spouse — regardless of permanent residency status — does not qualify for the marital deduction and is taxable at the first death to the extent it exceeds the BEA.
The solution is a Qualified Domestic Trust (QDOT) under I.R.C. § 2056A. A QDOT holds assets for the benefit of the non-citizen surviving spouse and qualifies for the marital deduction, deferring estate tax until distributions of principal are made or until the surviving spouse dies. The QDOT must have at least one U.S. trustee and must comply with specific IRS requirements to maintain its qualified status.
For couples where one spouse is not a U.S. citizen, the planning conversation must begin here. Standard bypass and QTIP analysis applies only after the QDOT structure is established.
⚠️ COMMON ERROR: Treating portability and bypass trusts as equivalent alternatives rather than tools with different consequences leads to planning errors in both directions — bypass trusts used where the basis step-up loss outweighs the estate tax benefit, and portability relied on where GST planning, remarriage risk, or appreciation exposure makes an irrevocable trust the better structure. The choice requires analysis of specific facts, not a default preference.
NOT LEGAL ADVICE. This article is prepared for professional reference and educational purposes only. It does not constitute legal advice and does not create an attorney-client relationship. Legal and tax professionals must conduct their own independent research and due diligence before relying on any analysis contained in this article. Laws, regulations, and administrative interpretations are subject to change. Application of these principles to specific facts requires professional judgment that this article cannot substitute for.
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