How Portability Helps Couples Reduce Estate Taxes

For people with significant wealth, making strategic use of the lifetime estate and gift tax exemption—the value of assets you can leave to heirs without incurring federal estate taxes—can help maximize how much their beneficiaries receive upon inheriting. Thoughtful planning is especially critical now: If Congress doesn't act, the current estate tax limit of $13.61 million per individual will be cut in half, to around $7 million, beginning in 2026.

Couples can apply various estate planning strategies to lock in the $13.61 limits. But, if you have unused exemption that is not needed, you can utilize a tax provision called portability to help your spouse, in the future. 

Married couples can transfer an unlimited amount of assets to each other during life or at death entirely gift and estate tax-free. However, leaving your surviving spouse with a large enough estate could trigger estate taxes of up to 40% on the amount that exceeds their lifetime estate tax limit.

This is where portability comes in. When one spouse dies, the surviving spouse can add the unused portion of their deceased spouse's exemption to their own lifetime exemption.

For example, if your spouse had used $5 million of their exemption prior to their death, you'd be eligible to add the remaining $8.61 million to your limit, bringing your total limit to $22.22 million. 

Portability is not automatic. You must elect to port over your deceased spouse's remaining exemption by filing a U.S. Estate, Gift, and Generation-Skipping Return (Form 706).

You have up to five years from your spouse's date of death to elect portability. Even if you don't think your assets will exceed your individual estate tax exemption, it could still be a good idea to file for portability upon your spouse's death.

There are some costs attached to filing—mostly for attorney and tax planner fees—but it's fairly easy to do and can provide a safeguard against unexpected tax changes or outsized asset appreciation. 

Portability is not a panacea, particularly if you have complex estate needs. Beware these limitations:

• Highly appreciating assets may outpace the limit: Should the assets that pass to the surviving spouse appreciate significantly, even the combined estate tax exemptions may not be enough to shield their estate from taxes.
• Portability doesn't apply to the generation-skipping transfer (GST) tax exemption: While the lifetime gift and estate tax exemption is portable between spouses, the GST tax exemption—which allows transfers to grandchildren and further descendants tax-free, up to the lifetime limit of $13.61 million per individual in 2024—is not. 
• State estate taxes may still be levied: Even if you believe portability would shield your estate from federal taxes, 12 states—Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington—as well as the District of Columbia charge their own estate taxes, and their exemption limits tend to be much lower than the federal limit. (Only Connecticut has the same estate tax exemption limit as the federal limit.)