Portability (Estate Tax)

Say one spouse dies with a $13.99 million exemption but only uses $3 million. The remaining $10.99 million can transfer to the surviving spouse. The survivor then has $13.99 million plus the $10.99 million "ported" amount. That totals $24.98 million in exemption.

Portability is not automatic. The surviving spouse must file IRS Form 706 within nine months of the first death. This applies even if no estate tax is owed. Missing this deadline means the unused exemption is lost forever. The IRS does allow late filing in some cases, but it takes a private letter ruling.

Before 2011, couples used credit shelter trusts (also called bypass or AB trusts) to preserve both exemptions. Portability simplifies this approach. However, credit shelter trusts still help in certain cases. They can protect appreciation from estate tax. They also shield assets from a surviving spouse's creditors or future spouse.