A “Portability” Election Can Preserve More Wealth for Future Generations

An upcoming reduction in the amount of an estate that can be passed on to heirs without paying taxes has many families wondering if they will have a large tax bill upon the death of a loved one. Currently, this tax-free amount, known as the unified credit or exclusion amount, is $12,060,000, but it is set to decline in 2026 to $5 million (adjusted for inflation). Likewise, tax rates will increase in 2026 to 45% from the current top rate of 40%.

This reduction in the exclusion amount, coupled with higher tax rates, could result in significantly higher tax bills for some estates. Families, however, can apply the unused exclusion amount of the first deceased spouse to reduce their estate or gift tax liability, and the IRS has extended their time to do so.

Preserving the ability to transfer this unused exclusion amount (called the deceased spouse unused exclusion amount, or DSUE amount) could save thousands, or even millions, of dollars in estate tax. This transfer ability, known as “portability,” increases the second spouse’s exclusion amount so they can transfer more assets to the next generation, either in gifts during life or at their death, without paying estate or gift tax.

Portability is not automatic; it must be requested, and specific steps must be taken to ensure that the DSUE is available for the second spouse.

The first step to obtaining portability is to file a “complete and properly prepared” estate tax return (Form 706) for the first deceased spouse, even if they do not have an estate that exceeds the exclusion amount and are not required to file a return. The due date of an estate tax return is nine months after date of death, with the availability of an automatic six-month extension by filing Form 4768. Unfortunately, many families do not file an estate tax return when the first spouse dies because the estate does not exceed the exclusion amount. They often discover the need to obtain portability outside the 15-month filing window. In 2017, the IRS granted an extension of the due date of an estate tax return to be filed for portability purposes to two years after date of death. The IRS recently extended the due date to five years.

This extension of time to file applies only to estates that are not required to file an estate tax return because the value of the estate does not exceed the exclusion amount. Also, this extension of time to file does NOT extend the date for which a claim for credit or refund of overpayment of estate or gift tax can be requested. Those dates remain the same. A claim for credit or refund can be made in anticipation of filing a portability estate tax return to protect amounts that may become overpaid after portability is approved.

The timing of filing the estate tax return to preserve portability is important. It must be filed before the surviving spouse, or the surviving spouse’s estate, can claim the DSUE amount because the DSUE amount is not available until the IRS has been notified of the intent to use it.

If you have had your spouse or first parent pass away within the past five years, and you are concerned the assets remaining may exceed the exclusion amount available, contact us. We can help you evaluate whether filing an estate tax return to preserve the DSUE makes sense.

Authored by Beverly Rosen, CPA.

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Mark Watson

Mark Watson

Partner-in-Charge, Tax Quality and Risk Management

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Mark Watson, CPA, CFP, joined Weaver in 2013 and has more than 25 years of experience providing tax compliance and…

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