© 2026 Wealth Care Lawyer — Klaus Gottlieb, Esq. Serving the California Central Coast.
Jurisdiction: Federal Primary Statutes: I.R.C. §§ 2001, 2010, 2010(c), 2056; Treas. Reg. § 20.2010-2 Administrative Guidance: Rev. Proc. 2022-32 (simplified late portability election) Last Reviewed: 2026 Category: Estate Tax | Federal | Marital Planning
Two federal estate tax rules protect married couples by default: the unlimited marital deduction, which eliminates estate tax on transfers between spouses regardless of amount, and portability, which allows the surviving spouse to add the deceased spouse’s unused exemption to their own. Together, these rules mean that a couple can defer all estate tax until the second death and, if portability is elected, shelter a combined amount from tax at that time.
Under the One Big Beautiful Budget Act (OBBBA), the federal estate and gift tax exemption is permanently set at $15 million per individual, indexed for inflation, with no scheduled sunset. The feared reversion to pre-2018 levels did not occur. For most married couples, the combined sheltered amount now exceeds $30 million — making estate tax a planning concern primarily for high-net-worth households.
Portability is powerful but not automatic. It requires the timely filing of a federal estate tax return (Form 706) for the deceased spouse’s estate, even if no tax is due. Missing that deadline — or failing to understand what portability cannot do — can cost the surviving spouse millions in unnecessary estate tax.
The unlimited marital deduction allows a decedent to transfer an unlimited amount of assets to a surviving spouse — during life or at death — with zero federal estate or gift tax consequence at the time of transfer. The deduction is not a credit; it is a full exclusion from the taxable estate. There is no cap. A $50 million estate left entirely to a surviving spouse generates no federal estate tax at the first death.
The deduction applies automatically when assets pass to a surviving spouse outright, as joint tenancy survivorship property, or as the primary beneficiary of a qualifying trust. The surviving spouse must be a U.S. citizen; special rules under I.R.C. § 2056A apply to non-citizen spouses and require a Qualified Domestic Trust (QDOT) to access a deferred — not permanent — version of the deduction.
⚠️ CRITICAL DISTINCTION: The unlimited marital deduction does not eliminate estate tax. It defers it. Assets passing to the surviving spouse are included in their gross estate at death. If the survivor’s estate then exceeds the available exemption at the second death, estate tax becomes due on the excess. The deduction is a deferral mechanism, not an exemption.
Portability was enacted in 2010 and made permanent in 2012. It allows the surviving spouse to carry forward the Deceased Spousal Unused Exclusion (DSUE) — the portion of the deceased spouse’s basic exclusion amount that was not consumed by taxable transfers during life or at death.
The mechanics: each individual has a basic exclusion amount under § 2010(b). If a deceased spouse used some or all of that exclusion on taxable transfers — lifetime gifts or bequests to persons other than the surviving spouse — the remainder (the DSUE) can be added to the surviving spouse’s own exclusion. The surviving spouse’s total applicable exclusion amount becomes their own basic exclusion plus the DSUE from the most recently deceased spouse.
Example. David dies in 2026 with a $15 million basic exclusion. He leaves $4 million to his children and the balance to his wife, Claire. His DSUE is $11 million (the $15 million exclusion less the $4 million used on transfers to children). If Claire properly elects portability, her applicable exclusion amount is $15 million (her own) plus $11 million (David’s DSUE) = $26 million. When Claire dies, no estate tax is due unless her estate exceeds $26 million.
⚠️ CRITICAL ISSUE: Portability is not automatic. The estate of the deceased spouse must elect portability by timely filing a federal estate tax return, Form 706, on or before the due date (nine months after the date of death, plus a six-month extension if requested). The election is made on the Form 706 itself. Failure to file forfeits the DSUE permanently — there is no other mechanism to preserve it.
This filing requirement applies even if the deceased spouse’s estate is well below the taxable threshold and no estate tax is owed. The Form 706 exists in this context solely to document the DSUE and preserve the portability election. Many families and even some advisors are unaware that a tax return may be required for a non-taxable estate.
Late filing relief: Rev. Proc. 2022-32. The IRS provides a simplified procedure for late portability elections for estates that were not otherwise required to file Form 706. Under Rev. Proc. 2022-32, the executor of an estate that did not file a timely Form 706 may file a late return to elect portability within five years of the decedent’s date of death, provided the estate was not otherwise required to file. This is a significant expansion of the prior two-year window and provides meaningful relief for families that missed the deadline. After five years, only a private letter ruling can potentially provide relief — a costly and uncertain process.
The unlimited marital deduction operates at the first death: it eliminates or reduces the taxable estate of the first spouse to die by removing assets that pass to the survivor. Portability operates at the second death: it determines how much of the first spouse’s unused exemption can be added to the survivor’s exemption.
A couple can use both in sequence. First spouse dies, leaves everything to survivor (marital deduction eliminates estate tax at first death); survivor elects portability (DSUE is added to survivor’s exemption); survivor dies, combined exemption shelters the full estate from tax up to the applicable amount. This is the most common pattern for couples whose combined estate is below the combined exemption threshold.
The DSUE can be used by the surviving spouse for both estate tax purposes at death and gift tax purposes on lifetime transfers. However, the DSUE is fixed at the time of the first spouse’s death and does not increase with inflation or future changes in the basic exclusion amount. The surviving spouse’s own basic exclusion amount is indexed for inflation; the DSUE is not.
If the surviving spouse remarries and the new spouse also predeceases them, only the DSUE from the most recently deceased spouse is available. A DSUE from a prior deceased spouse is forfeited upon remarriage. This creates planning considerations for widowed individuals who remarry.
⚠️ CRITICAL ISSUE: A surviving spouse who remarries loses the DSUE from the first deceased spouse, even if the new marriage is brief. If the second spouse dies before using their own exclusion, the survivor’s available DSUE resets to the second spouse’s DSUE only. Portability planning for widowed individuals must account for remarriage risk.
Assets that pass to a surviving spouse receive a step-up in income tax basis to fair market value at the first spouse’s death under I.R.C. § 1014. When those assets pass to the next generation at the survivor’s death, they receive a second step-up in basis. This double step-up is one of the most significant income tax benefits of the marital deduction / portability approach.
However, this advantage only applies to assets included in the gross estates of both spouses. Assets removed from both estates through irrevocable transfers before either death do not receive the second step-up. This tradeoff between estate tax savings and basis step-up is a central tension in estate planning for couples near or above the exemption threshold.
The Tax Cuts and Jobs Act of 2017 (TCJA) doubled the basic exclusion amount to approximately $11.18 million per individual (2018), which reached $13.61 million per individual by 2024 and $13.99 million in 2025. The TCJA included a scheduled sunset at the end of 2025 that would have reverted the exemption to approximately $7 million per individual (inflation-adjusted).
The One Big Beautiful Budget Act eliminated that sunset. The OBBBA permanently sets the basic exclusion amount at $15 million per individual, indexed for inflation, with no future scheduled reduction. The combined federal estate and gift tax exemption for a married couple using portability is therefore approximately $30 million in 2026, growing annually with inflation.
The estate tax rate remains 40% on the taxable estate above the exemption. The gift tax annual exclusion ($18,000 per recipient in 2024) is unchanged and continues to allow tax-free lifetime transfers outside the basic exclusion framework.
📌 PLANNING NOTE: With the OBBBA making the $15 million exemption permanent, the urgency that drove many couples to accelerate irrevocable gifting before the 2025 sunset has dissipated. Couples who made large irrevocable transfers in anticipation of the sunset should review those plans — some may have forfeited income tax basis step-up without a corresponding estate tax benefit given the current permanent exemption level.
Portability and the unlimited marital deduction are default rules, not optimal strategies for every couple. Three limitations drive the analysis:
1. Portability does not shelter appreciation. The DSUE is fixed at the dollar amount of the first spouse’s unused exclusion at death. If the surviving spouse’s estate grows substantially after the first death — through investment appreciation, business growth, or inheritance — the DSUE does not grow with it. A bypass trust (also called a credit shelter trust or family trust) funds an irrevocable trust at the first death with an amount equal to the available exemption. That trust and all its future appreciation is permanently outside the survivor’s taxable estate, sheltering growth that portability cannot capture.
2. Portability is lost if Form 706 is not filed. A bypass trust does not depend on a tax return election. Once funded, the assets are outside the estate permanently, regardless of what happens to the portability rules or whether an election was properly made.
3. Asset protection and state estate tax. Many states impose their own estate tax with exemption amounts significantly below the federal level. California has no state estate tax, but the surviving spouse may hold assets in other states or relocate. A bypass trust can be structured to shelter assets from state estate taxes that portability does not address. Bypass trusts also provide asset protection benefits — assets in the trust are not part of the surviving spouse’s estate for creditor purposes.
| Strategy | Shelters Appreciation | Requires Form 706 | State Tax Benefit | Asset Protection |
|---|---|---|---|---|
| Marital deduction + portability | No | Yes | No | No |
| Bypass (credit shelter) trust | Yes | No | Potentially | Yes |
| QTIP trust | Partially | Yes (for marital deduction) | Depends | Limited |
📌 PLANNING NOTE: For couples whose combined estate is comfortably below $30 million and who have no state estate tax exposure, portability and the unlimited marital deduction may be entirely adequate. The simpler the structure, the fewer the administration costs and risks of error. Complexity should be proportionate to the planning need.
Filing checklist after the first spouse’s death:
Client communication points:
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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