Portability
Portability is the federal estate-tax election under §2010(c)(5) allowing a surviving spouse to inherit and use the Deceased Spousal Unused Exemption (DSUE) — the portion of the deceased spouse's federal estate tax exemption that wasn't used at death. The election requires a timely-filed Form 706 estate tax return on the first death, even when no tax is owed.
Before 2011, a couple's combined federal exemption was 'use-it-or-lose-it' at the first death. If the first spouse died with $5M of exemption unused, that exemption was lost; only the surviving spouse's own exemption remained. To preserve both exemptions, couples used credit-shelter (bypass) trusts at the first death — funded with the deceased's exemption, with the trust property NOT in the surviving spouse's estate at the second death.
The Tax Relief Act of 2010 introduced portability, making the credit-shelter-trust workaround optional rather than necessary. Under portability, the surviving spouse gets the deceased spouse's unused exemption directly — adding to her own at the second death. With the 2026 federal exemption at ~$13.99M per individual, a couple using portability has up to ~$28M of combined exemption — enough to shelter most estates without trust structures.
The election is mechanical: file Form 706 within 9 months of the first death (or 15 months with extension), specifying the DSUE amount. Even when no estate tax is owed, the form must be filed to preserve portability — and the filing requires asset valuations as of date of death. The IRS allows simplified filing for portability-only purposes, but the estate must still document its assets. SECURE 2.0 added a 5-year extended-filing safe harbor for portability-only Form 706s when no tax is owed; estates can elect retroactively up to 5 years after the first death without IRS consent.
Synthetic married households should track DSUE inheritance on widowed members. Test scenarios include the well-prepared couple (Form 706 filed timely, DSUE preserved), the missed-filing couple (Form 706 not filed, DSUE permanently lost), and the SECURE 2.0 retroactive-election case (Form 706 filed years late under the extended safe harbor). The DSUE amount should appear on the widowed spouse's available-exemption ledger.
Common pitfalls
- Failing to file Form 706 on the first death because no tax is owed — without the filing, DSUE is lost permanently.
- Treating portability as a substitute for state-level estate planning — many states with separate estate taxes do not have portability and still require credit-shelter trusts to preserve state exemption.
- Relying on portability for asset growth between deaths — DSUE is fixed at the first-death amount; growth in the surviving spouse's estate uses the survivor's own exemption, not the DSUE.
- Missing the 5-year SECURE 2.0 extended safe harbor — many estates fail to file timely and don't realize the late-filing option exists.
Examples
Couple with combined $20M estate, even split. Husband dies first with $10M; uses $0 of exemption (entire $10M passes to wife under marital deduction). Wife inherits Husband's $13.99M DSUE. Wife later dies with $25M estate (couples + growth). Wife's exemption: $13.99M (own) + $13.99M (DSUE) = $27.98M. Wife's $25M estate is fully sheltered. Net estate tax: $0. Without portability filing: wife's estate has $13.99M − $25M = $11.01M taxable at 40% = $4.4M federal estate tax.