Portability is an important concept in estate planning that can help married couples maximize their federal estate tax exemptions. In simple terms, portability allows the unused portion of a deceased spouse’s federal estate tax exemption to pass to the surviving spouse, potentially reducing estate taxes when the second spouse passes away. While California does not impose a state estate tax, federal portability still affects California residents with larger estates.
Under Internal Revenue Code (IRC) Section 2010(c)(2), the surviving spouse can inherit the deceased spouse’s unused federal estate tax exemption. Starting in 2026, each individual will have a federal estate tax exemption of $15 million. Without portability, any unused exemption from the first spouse would be lost but, with portability, it can be added to the surviving spouse’s own exemption. This can effectively double the amount a couple can pass tax-free to their heirs.
Although California does not have a state estate tax, the federal rules still apply to California residents. Portability is particularly relevant for married couples with estates exceeding the federal exemption threshold. For example, if a husband passes away leaving $7 million to heirs and his exemption is $15 million, $8 million of his exemption is unused. With proper election, this unused amount can be transferred to his surviving wife, increasing her exemption to $23 million.
To take advantage of portability, an executor or personal representative of the deceased spouse’s estate must file IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, even if no estate tax is owed. This election is not automatic; timely filing is required.
Generally, the return must be filed within nine months of the date of death. Extensions can be requested, but missing the filing deadline typically forfeits the portability benefit.
Steps to secure portability
- Consult an estate planning professional: Portability rules can be complex and working with a California attorney or CPA ensures all deadlines and forms are properly handled.
- Prepare Form 706: The form requires a full inventory of the deceased spouse’s assets, liabilities and deductions.
- Make the portability election: On Form 706, indicate that the estate elects to transfer the deceased spouse’s unused exemption (DSUE) to the surviving spouse.
- Maintain records: The surviving spouse should keep documentation of the DSUE amount for future estate planning.
Even with portability, some married couples may still benefit from using a credit shelter trust (bypass trust) to protect assets and manage other planning goals, such as controlling how assets are distributed to heirs or minimizing exposure to future estate tax law changes.
In summary, portability is a valuable tool for married couples in California to preserve federal estate tax exemptions and reduce potential taxes for the surviving spouse. By understanding IRC Section 2010(c)(2) and following the proper steps, couples can ensure their estates are efficiently planned for the benefit of their heirs.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues. This article is provided by your local estate planning attorney, Corina Colan. The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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