Estate Tax Portability Election

The Estate Tax Portability Election is a provision that allows a deceased individual’s unused estate tax exemption to be transferred to their surviving spouse, thereby potentially increasing the surviving spouse’s estate tax exemption.

When a married person dies, their estate may be subject to federal estate taxes if it exceeds a certain threshold, known as the exemption amount. As of 2023, the federal estate tax exemption is $12.92 million per individual. If the deceased spouse does not utilize their entire exemption during their lifetime, the unused portion can be elected to transfer to the surviving spouse, effectively allowing them to claim a higher exemption when they pass away.

To take advantage of the Estate Tax Portability Election, the surviving spouse must file a federal estate tax return (IRS Form 706) for the deceased spouse, even if the estate is below the taxable threshold. This return must be filed within nine months of the date of death, although an extension of up to six months may be requested.

For example, if Spouse A dies and leaves an estate valued at $7 million, their unused exemption of approximately $5.92 million can be transferred to Spouse B. When Spouse B ultimately passes away, they can use their own exemption of $12.92 million plus the additional $5.92 million from Spouse A, allowing them to exempt up to $18.84 million from estate taxes.

In Texas, where estate taxes are not imposed at the state level, the Estate Tax Portability Election can still provide significant tax benefits at the federal level, particularly for high-net-worth couples. Utilizing this election effectively can help ensure that more wealth is passed on to heirs without being diminished by estate tax liabilities.