Every person has a federal estate and gift tax exemption. For 2025, that amount is $13.99 million per person. Married couples can protect nearly $28 million combined. But using both exemption limits takes some planning. That is where portability comes in.
What Portability Means
Portability lets a surviving spouse use the unused estate tax exemption left over from the spouse who died first. Say the first spouse only used $2 million of their exemption. The rest can transfer to the surviving spouse. The surviving spouse then has their own exemption plus whatever was left over.
This is a powerful tool. It can double the amount a couple passes to heirs free of federal estate tax.
Portability Is Not Automatic
Here is the key point: portability is not automatic. The executor of the deceased spouse's estate must file IRS Form 706 (the federal estate tax return) and elect portability. This must happen even if the estate owes no tax. It applies even if the estate is well below the exemption limits.
Many families skip this step. They assume no tax return is needed for a small estate. That mistake can cost the surviving spouse millions in lost exemption. Filing the return is the only way to lock in the unused amount.
The Deadline and Extensions
Form 706 is generally due nine months after the date of death. A six-month extension is available. The IRS also created a simple late-filing process for estates that missed the first deadline. Under Rev. Proc. 2022-32, estates can file a late portability election within five years of the death.
This relief is a welcome safety net. But it is always better to file on time.
How Portability Works with the Gift Tax Exemption
The federal gift tax exemption and the estate tax exemption are unified. They share the same overall limit. If the surviving spouse gets the unused amount through portability, that extra exemption can be used for lifetime gifts. It also applies to transfers at death.
This means a surviving spouse could make large gifts to children or grandchildren during their life. They can use both their own exemption and the ported amount.
Portability vs. a Bypass Trust
Before 2013, married couples used bypass trusts (also called credit shelter trusts or AB trusts) to keep both exemptions. Portability then became permanent. These trusts are still useful in some cases. A bypass trust offers perks that portability does not:
- It protects assets from the surviving spouse's creditors
- It locks in the exemption amount at the first spouse's death, guarding against future law changes
- It can shelter future growth from estate tax
- It applies to the generation-skipping transfer (GST) tax, which portability does not cover
Portability is simpler and costs less to set up. But for larger estates, or for families worried about the GST tax, a bypass trust may still be the better path.
What Happens If the Exemption Drops
The current $13.99 million exemption is set to drop after 2025 unless Congress acts. If the exemption falls to roughly $7 million per person, portability becomes even more valuable. Locking in a high unused exemption now by filing Form 706 could save a family millions in future estate taxes.
Do not leave this to chance. Filing the estate tax return after the first spouse's death is one of the simplest steps in estate planning. It is also one of the most valuable. It costs little and can protect a fortune.
For the full Arizona walkthrough of federal estate, gift, and GST tax planning, including portability, the lifetime exemption, and annual exclusion gifts, read our pillar guide: Estate, Gift & GST Tax in Arizona: The Complete Guide.