Estate Tax Trap: Are You Making This $13M Portability Mistake?
The $13 Million Estate Tax Mistake Many Families Are Making
A powerful but often misunderstood tax rule could be the difference between your heirs inheriting millions of dollars more or facing a staggering tax bill. The rule is called portability, and it allows a surviving spouse to use their deceased partner’s unused estate tax exemption. However, financial advisors are warning that a simple procedural error is causing countless families to forfeit this massive tax advantage, a mistake that could cost their children dearly.
This isn’t a niche issue for the ultra-wealthy; with the current exemption levels set to be cut in half at the end of 2025, more families will find themselves subject to the federal estate tax. Understanding the portability planning mistake is now more critical than ever for securing your family’s financial future.
What is Estate Tax Portability and How Does It Work?
The federal government taxes large estates upon a person’s death. However, everyone gets a lifetime exemption—an amount they can pass on tax-free. For 2024, this exemption is a generous $13.61 million per person.
Here’s where portability comes in:
- When the first spouse dies, any portion of their $13.61 million exemption they don’t use can be transferred to the surviving spouse.
- This allows the surviving spouse to “port” over the unused amount and add it to their own exemption.
- The result is a combined, or “ported,” exemption that could be as high as $27.22 million for the couple.
This “Deceased Spousal Unused Exclusion” (DSUE) is a game-changer. It allows married couples to effectively double the amount they can pass on to their heirs tax-free.
The Critical Mistake: Failing to File Form 706
The ability to claim portability is not automatic. To secure the deceased spouse’s unused exemption, the surviving spouse must file a specific tax form: IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return.
This is the critical step where many people go wrong. Here’s the common scenario:
- The first spouse dies with an estate well below the $13.61 million threshold.
- The family assumes that since no estate tax is due, there is no need to file any estate tax forms.
- By not filing Form 706, they fail to make the portability election.
- The deceased spouse’s unused exemption is permanently lost.
Years later, when the surviving spouse passes away, their estate may have grown significantly in value. Without the ported exemption, their heirs could face a massive and unexpected tax bill on the amount that exceeds the single exemption.
Why This Matters More Now: The 2026 Tax Cliff
The urgency of this issue is amplified by upcoming changes to tax law. The current high estate tax exemption is temporary, a result of the 2017 Tax Cuts and Jobs Act. On January 1, 2026, this exemption is scheduled to revert to its pre-2017 level, which is estimated to be around $7 million after adjusting for inflation.
| Year | Federal Estate Tax Exemption (Per Person) |
|---|---|
| 2024 | $13.61 million |
| 2025 | ~$14 million (projected) |
| 2026 | ~$7 million (projected) |
This “tax cliff” means many more families will suddenly find their estates large enough to be taxed. Filing for portability now acts as a crucial insurance policy against this future liability.
Conclusion: A Simple Form, A Million-Dollar Decision
The failure to elect portability by filing Form 706 is a silent but costly error. It’s a simple administrative step that can secure millions of dollars for the next generation. Given the impending 2026 estate tax changes, the decision to file is more than just paperwork—it’s a foundational part of modern estate planning. If you are a surviving spouse, consulting with a tax professional or estate planning attorney to discuss filing Form 706 is essential, even if your partner’s estate seems small today.
Have you reviewed your estate plan in light of the upcoming 2026 changes? Share your experience or questions in the comments below.
FAQ Section
1. Who needs to file for estate tax portability? The executor of the estate of the first spouse to die should file IRS Form 706 to make the portability election. This should be done even if the estate is not large enough to owe any immediate tax, as it preserves the unused exemption for the surviving spouse.
2. Is there a deadline to file for portability? Yes. The Form 706 must generally be filed within nine months of the date of death, though a six-month extension is often available. The IRS has provided a simplified method for obtaining an extension to file up to five years after the date of death in certain circumstances.
3. What happens if the surviving spouse remarries? A surviving spouse can only use the unused exemption from their most recently deceased spouse. If they remarry and their new spouse also passes away, they can only use the DSUE amount from that second spouse, losing the exemption from the first. This makes careful planning essential.
