Effective estate planning is crucial for married couples, and a key, often-overlooked component is understanding portability. This vital provision allows a surviving spouse to utilize any unused federal estate tax exemption from their deceased spouse, potentially saving their beneficiaries a significant amount in future estate taxes. The good news for many families is that the IRS has made the process of making this election easier, even if you’ve previously missed the original, stricter deadline. This extension offers a critical opportunity to re-evaluate your estate plan and secure your family’s financial future.
What is Portability and Why Does it Matter?
When someone passes away, their estate may be subject to federal estate taxes. However, every individual has a federal estate tax exemption – a certain amount of assets they can pass on without incurring this tax. For 2025, this exemption is [Insert Current Exemption Amount – e.g., $13.61 million per individual, subject to inflation].
For married couples, portability is a powerful tool. It allows the surviving spouse to add their deceased spouse’s unused exemption amount to their own, effectively increasing the total tax-free amount they can pass on to their heirs. This “Deceased Spousal Unused Exclusion” (DSUE) amount can significantly reduce or even eliminate estate tax liability upon the second spouse’s death.
An IRS Form 706, Federal Estate Tax Return, must be filed to elect portability. For estates that exceed the filing threshold (currently [Insert Current Exemption Amount] for individuals), taxpayers typically use Form 706 to calculate estate taxes owed and claim portability, even if no tax is immediately due. However, for many smaller estates that fell below the filing threshold, Form 706 was not required, leading many to unknowingly miss the portability election.
The Cost of Missing the Election: A Significant Burden on Heirs
Failing to file Form 706 to elect portability can have substantial and irreversible financial consequences for your heirs. If the election is not made, the estate forever loses the deceased spouse’s unused exemption amount. As a result, the surviving spouse will only have their personal exemption amount available, potentially subjecting a much larger portion of their estate to federal estate taxes when they pass away.
Consider this illuminating example: A married couple has a combined estate valued at $12 million. If the first spouse passes away and leaves all assets to the survivor, but the estate doesn’t file a Form 706 for portability, the surviving spouse will only have their individual exemption (for instance, $13.61 million if it’s the 2025 amount). This means if the survivor’s estate exceeds their individual exemption amount at their death, a significant portion (in this example, the entire $12 million estate, if their own exemption covers it, but if their estate grows beyond their individual exemption, the unused portion from the first spouse is lost) could be subject to estate taxes, resulting in a substantial tax bill for their beneficiaries.
However, if they correctly file Form 706 for portability, the surviving spouse can claim the deceased spouse’s unused exemption. This effectively doubles their total available exemption, allowing them to pass on a much larger portion of their estate free of federal estate tax. This can lead to substantial tax savings and ensure more of your hard-earned assets are preserved for future generations.
Beyond immediate tax savings, portability also offers greater flexibility in estate planning. For instance, it can simplify planning for couples where one spouse is in poor health, ensuring the surviving spouse can still utilize the deceased spouse’s unused exemption, maximizing the tax-free inheritance for heirs regardless of how assets are structured during life.
The Extended Deadline: A Welcome and Crucial Change
Previously, the deadline to elect portability was much stricter, typically nine months after the decedent’s date of death, or the last day of an extended filing period. Recognizing the challenges and common oversights faced by many estates, especially those not otherwise required to file an estate tax return, the IRS issued Revenue Procedure 2022-32.
This significant change allows estates to elect portability of a Deceased Spousal Unused Exclusion (DSUE) amount as much as five years after the decedent’s date of death. This extended deadline applies to estates of individuals who died after December 31, 2010, and were survived by a spouse, even if they weren’t otherwise required to file an estate tax return. This new revenue procedure provides a much-needed reprieve for those who missed that initial, often unforgiving, window.
Filing an IRS Form 706 for portability is a critical aspect of thoughtful estate planning for married couples with significant assets. It can provide substantial tax savings for your heirs and offers invaluable flexibility in estate management. Given this recent, generous extension by the IRS, reviewing your estate plan and ensuring you’re taking full advantage of this valuable provision is more important than ever.
Have Questions?
Do you have questions about portability, how this extended deadline might affect your specific estate plan, or if your family qualifies? Consulting with an experienced estate planning professional at Calvetti Ferguson can help you navigate these complexities and ensure your beneficiaries receive the maximum benefit from your estate. Don’t leave potential tax savings on the table.
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