estate tax exemption surviving spouse

Surviving Spouses and Estate Tax Exemption Portability

Maximizing the Estate Tax Exemption of a Surviving Spouse

For married couples, one of the most powerful estate planning tools is the portability of the federal estate tax exemption. This provision can dramatically lower estate tax liability for the surviving spouse—but only if you notify the IRS you intend to use your deceased spouse’s unused exemption. Otherwise, you’re leaving money on the table (and future financial hardship for your heirs).

Understanding how portability works, how to file the election, and how it fits into estate planning when a spouse dies can make a meaningful difference in preserving wealth for your family. Let’s dig into the details.

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Portability of the Estate Tax Exemption for Spouses

Portability enables a surviving spouse to “inherit” the unused amount of their deceased spouse’s federal estate tax exemption. This effectively increases the surviving spouse’s own exemption at their death. The remaining amount is known as the Deceased Spousal Unused Exclusion (DSUE).

The federal exemption is historically high right now, at $13.99 million per individual, with an increase to $15 million per person in 2026. So, if a spouse passes away having used only $5 million of their exemption, the remaining $8.99 million can be transferred to the surviving spouse.

For a surviving spouse, transferring the DSUE can:

  • Shield more assets from future estate tax
  • Provide flexibility for lifetime gifting
  • Preserve wealth for children and grandchildren
  • Prevent the loss of businesses and assets

But here’s the key: even if the estate owes no tax at the first spouse’s death, the executor must file a federal estate tax return to claim portability. If the form isn’t filed on time, the DSUE is lost forever. 

To say it again for the folks in the back of the room – DSUE is NOT automatic!

Why the Estate Tax Exemption for a Surviving Spouse Is So Important 

A recent case highlights the importance of diligent estate planning, particularly for high-net-worth individuals. Billy Rowland, an Ohio businessman, filed a tax return when his wife Fay died in 2016 to port her DSUE to his estate. When Billy died two years later, his heirs received a shock—the IRS claimed that Fay’s final return was not “properly prepared” under Treasury regulations. As a result, the DSUE amount—over $3.7 million—was forfeited.

The problem with the return? Incomplete filing. The return only supplied an estimated gross estate value and lacked fair market valuations for individual assets. Although the family tried to argue that the return substantially complied and mistakes were made in good faith, the court disagreed, doubling down on strict compliance for portability elections. In the end, Billy’s heirs were stuck with a $1.5 million tax bill.

How to File the Portability Election

Understandably, the IRS requires strict adherence to reporting rules to claim portability. To receive your deceased spouse’s remaining exemption, you must: 

  • File IRS Form 706. You must file a federal estate tax return, even if no estate tax is due, using Form 706 (U.S. Estate, Gift, and Generation-Skipping Return). The general rule is to file within nine months of death, with the option to request a six-month extension.
  • Provide itemized asset valuations. Assets must be reported with complete and accurate valuations, even when no tax is owed. Valuations must be done by a certified appraiser. 
  • Keep supporting records. Appraisals, statements, and ownership documentation must be preserved.

While the IRS has created relief rules for certain late filings, those options are limited and not guaranteed. The safest path is to file properly and on time.

Portability Is Only One Piece of the Puzzle

It’s worth noting that portability has limits. For one, it doesn’t apply to the Generation-Skipping Transfer (GST) tax exemption, which is separate from the estate tax exemption.

Portability also does not protect asset growth. If the surviving spouse’s estate appreciates significantly, even the combined exemptions may not be sufficient to avoid estate taxes. Many couples benefit from using both trusts and portability to maximize efficiency.

While an essential tool, it doesn’t replace a comprehensive estate plan. It works best alongside:

  • Properly funded trusts
  • Updated wills
  • Up-to-date beneficiary designations
  • Coordinated gifting plans
  • Asset protection strategies
  • Long-term tax planning for retirement assets

Estate Planning When a Spouse Dies: Why This Moment Matters

When a spouse passes away, families understandably focus on grief and immediate responsibilities. But if you don’t have someone to review your estate plan when these life events happen, even a well-designed plan can drift off course. After the death of a spouse, the surviving spouse’s plan almost always needs adjustments, including:

  • Updating fiduciary roles. Most married couples build their plans around each other: naming each other as executor, trustee, power of attorney, and primary beneficiary. You’ll likely need new people in those positions—people who are willing, appropriate, and legally able to act.
  • Revising beneficiary designations. Retirement accounts, life insurance policies, and payable-on-death accounts don’t change automatically. Someone needs to review them and ensure the right beneficiaries are named.
  • Evaluating whether a trust should now be funded. Some trusts are designed to spring into action only after the first spouse passes away—especially credit shelter trusts or marital trusts. An attorney can determine whether assets need to be moved now.
  • Confirming whether assets need retitling. Property owned jointly with a spouse may need updated deeds, new account registrations, or fresh title documents. This helps avoid probate issues later.
  • Assessing new tax exposure. The surviving spouse’s estate picture may look very different. You might gain or lose certain tax protections, or investments could grow significantly over time. You need someone with an eye on filing timelines and asset protection structures.
  • Reassessing liquidity needs. The surviving spouse may need to rethink cash flow, access to funds, and how to cover future expenses, including long-term care.

Estate Planning Is an Ongoing Process—Not a One-Time Task

Estate planning is really a lifelong project, and survivors benefit from steady guidance as their financial and personal landscape changes. This means regular reviews and revisions of your plan with an estate planning attorney who can spot potential problems before they become catastrophes. Email us at hello@yolofskylaw.com or schedule a call today to get started.