Portability Election: Preserve Your Parent's Unused Estate Tax Exemption

When a married person dies in 2026, their unused federal estate tax exemption — up to $15 million — can transfer to the surviving spouse. This is called the portability election. It requires filing Form 706 within 9 months of death, even if the estate owes no estate tax. Miss the deadline and that exemption is gone permanently.

What portability and DSUE are

The federal estate and gift tax imposes a 40% tax on transfers above the applicable exclusion amount — $15 million per person in 2026, permanently set by the One Big Beautiful Bill Act (OBBBA, July 2025).¹ A married person who dies without using their full exemption leaves behind unused exclusion.

Portability is the rule that allows the surviving spouse to inherit that unused exemption. The technical term is DSUE — Deceased Spousal Unused Exclusion. Under IRC § 2010(c), the surviving spouse can add the decedent's DSUE to their own $15 million exemption, effectively shielding up to $30 million from federal estate and gift tax combined.

A concrete example

Your father dies in 2026 with a gross estate of $4 million. His $15 million 2026 exemption was almost entirely unused — his DSUE is approximately $11 million. Your mother is still alive. If the portability election is made on a timely filed Form 706, your mother's total applicable exclusion is now $15M (her own) + $11M (DSUE) = $26 million. Without the election, her exemption stays at $15 million.

If your mother's estate grows to $20 million before her death — through investment returns, a business sale, or a large inheritance — the difference between $15M and $26M in shielded assets is $5 million exposed to 40% estate tax: $2 million in avoidable tax, lost because a Form 706 was never filed.

Why it matters even with a $15M exemption

With a permanent $15 million per-person exemption, most families will never pay federal estate tax. But several factors can change the math over a long time horizon:

• Surviving spouse wealth accumulation. The surviving spouse may receive life insurance proceeds, sell a business, or inherit other assets. A modest estate at your father's death can grow substantially over the decades before your mother's death.
• Inflation indexing cuts both ways. The exemption is indexed for inflation beginning in 2027, but asset values — especially real estate, business interests, and equity portfolios — can grow faster than the CPI.
• State estate taxes are much lower. Twelve states and the District of Columbia impose their own estate taxes with exemptions far below $15 million — some as low as $1 million (Massachusetts, Oregon).² Federal portability doesn't solve the state estate tax problem, but failing to even file for federal portability forecloses the analysis entirely.
• The cost of filing is low; the cost of missing the deadline is permanent. Preparing Form 706 solely for portability on an otherwise non-taxable estate typically costs $1,500–$5,000 in CPA or attorney time. The DSUE forfeited by missing the deadline can be worth far more.

Who files Form 706 — and the trustee's role

Form 706 (United States Estate [and Generation-Skipping Transfer] Tax Return) is filed by the executor — formally called the personal representative — not the successor trustee. The executor is the person named in the will or appointed by a court to administer the probate estate.

In practice, the executor and successor trustee are often the same person. If your parent had a revocable living trust with a pour-over will, you were likely named in both documents. As successor trustee, you administer the trust assets privately. As executor, you handle probate assets, file the final income tax return (Form 1040), and — if warranted — file Form 706. For a full breakdown of the two roles, see Trustee vs. Executor: Your Dual Role When a Parent Dies.

Your role as successor trustee intersects with the Form 706 filing in several concrete ways:

• Asset inventory and date-of-death values. The trust holds most of the estate assets, and you need to establish IRS-defensible date-of-death values for all of them — publicly traded securities, real estate, business interests. Those values flow directly into the 706 gross estate. See Trust Asset Inventory and Date-of-Death Valuation.
• Coordination with the estate attorney. The attorney preparing the 706 will need the trust document, the trust inventory, and information about any prior taxable gifts the decedent made during their lifetime.
• Elections made on Form 706. The alternate valuation date election (IRC § 2032), QTIP election (if there's a marital trust), and GST exemption allocations are all made on Form 706 and interact with the trust's structure. The successor trustee's decisions about trust assets should be coordinated with whatever elections are being made on the 706.

The 9-month deadline and 6-month extension

Form 706 is due 9 months from the decedent's date of death.³ For a parent who died March 15, 2026, the Form 706 due date is December 15, 2026.

A 6-month extension is available by filing Form 4768 before the original 9-month deadline. The extension is automatic — no reason required — and moves the filing deadline to 15 months from death. Important nuances:

• The extension is for filing only, not payment. Any estate tax owed is still due at the 9-month deadline. Unpaid tax accrues interest from that date even if filing is extended.
• File Form 4768 before the original due date. The extension request itself must be filed before the 9-month deadline. A late extension request may not be granted.
• Portability can be elected on a timely extended return. Filing Form 4768 preserves the ability to make the portability election on the extended return. If you're uncertain whether portability makes sense but don't want to lose the option, file the extension first — it costs nothing and preserves all options.

5-year late relief: Rev. Proc. 2022-32

If the 9-month deadline (and the extended 15-month deadline) have already passed, there may still be a path forward — but only for estates that didn't have an obligation to file in the first place.

Rev. Proc. 2022-32 provides a simplified method for a late portability election when two conditions are both met:⁴

1. The estate was below the filing threshold. The decedent's gross estate plus adjusted taxable gifts did not exceed the applicable exclusion amount — meaning the estate had no estate tax filing obligation for tax purposes. In 2026, that threshold is $15 million. If the estate was taxable (above threshold), no late relief under Rev. Proc. 2022-32 is available.
2. Form 706 has not previously been filed. This is the first time a 706 is being filed for this decedent.

If both conditions are met, the executor can file a complete and properly prepared Form 706 with the notation "FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)" on or before the fifth anniversary of the decedent's date of death. The IRS will accept the late election as timely made.

Critical limitations of Rev. Proc. 2022-32:

• Does not extend other elections. The alternate valuation date election (IRC § 2032), QTIP elections, and GST exemption allocations have separate deadlines that Rev. Proc. 2022-32 does not revive. Those elections, if missed, are permanently gone.
• Surviving spouse must still be alive. If the surviving spouse has already died before the late election is made, the DSUE is moot — there is no one to use it.
• IRS audit rights are preserved. The IRS retains the right to audit the first decedent's estate return to verify the DSUE amount when the surviving spouse's estate is later settled.
• The surviving spouse cannot yet have remarried and had the new spouse predecease them. Portability tracks only the most recently deceased spouse; complicated chain-of-spouses situations require a tax professional.

The GST trap: generation-skipping exemption is NOT portable

This is one of the most important distinctions in estate planning — and one of the most overlooked.

The generation-skipping transfer (GST) tax exemption is also $15 million per person in 2026 (OBBBA).¹ But unlike the estate and gift tax exemption, the GST exemption is not portable between spouses. When a spouse dies with unused GST exemption, that exemption disappears. The surviving spouse cannot inherit it under any circumstances.

This has direct consequences for trust administration when grandchildren are beneficiaries, trusts are designed to last multiple generations, or the first-to-die spouse intended to allocate GST exemption to assets in trust at death. GST exemption allocations are made on a timely filed Form 706 — and if no Form 706 is filed, those allocations are lost permanently.

For a couple with a combined $30 million estate and grandchildren as intended beneficiaries: failing to allocate the first spouse's $15 million GST exemption on a timely Form 706 potentially exposes $15 million in trust distributions to grandchildren to the 40% GST tax. The cost of that omission can be vastly greater than the cost of preparing the return.

The non-portability of GST exemption is why estate planners often design trusts to ensure each spouse's GST exemption is allocated to long-term trusts during the first spouse's estate administration, rather than relying on the surviving spouse's exemption alone. See Generation-Skipping Trust Administration for the mechanics.

Portability vs. bypass trust planning after OBBBA

Before OBBBA made the $15 million exemption permanent, many estate plans used a credit shelter trust (bypass trust or Family Trust) specifically to capture the first-to-die spouse's exemption at death. That design was driven partly by the unreliability of portability under prior law and partly by the TCJA sunset that has now been permanently eliminated. If the trust you are administering includes an AB trust structure, that design was likely implemented before OBBBA.

With OBBBA's permanent $15M exemption, the portability-vs-bypass tradeoff has shifted:

• Portability advantage: double step-up in basis. Assets held by the surviving spouse directly receive a second step-up in basis at their death (IRC § 1014). Assets locked in a bypass trust at the first death do not get a second step-up — all appreciation since the first death is taxable when those assets are eventually sold or distributed. With portability, the surviving spouse holds all assets, and the estate gets one comprehensive step-up at the second death. See Step-Up in Basis Guide and Credit Shelter Trust Administration for the no-second-step-up analysis.
• Bypass trust advantages: asset protection and GST planning. Assets in a properly designed bypass trust are protected from the surviving spouse's creditors and future spouses. The bypass trust permanently allocates the first-to-die spouse's GST exemption to assets inside the trust — something portability cannot replicate. For larger or more complex estates, the bypass trust may still be the right design choice after OBBBA.

This tradeoff is a planning analysis for the estate attorney and financial advisor — not a trustee decision you make unilaterally. But as successor trustee, you need to understand whether the trust you are administering requires a bypass trust split at the first death, what funding that requires, and whether there is an opportunity to reform the trust if the current structure no longer makes sense in the OBBBA world. See Can an Irrevocable Trust Be Modified?

When to elect even if it seems unnecessary

Given the combination of a permanent $15 million exemption, a relatively low filing cost, and an irreversible deadline, the practical rule for most married-decedent estates is: evaluate first, decide with analysis, and err toward filing when in doubt. Situations that weigh strongly toward electing portability:

• Young or middle-aged surviving spouse. Decades of wealth accumulation ahead; the future estate can grow significantly beyond the current snapshot.
• Surviving spouse owns or will receive business interests or real estate. Values for closely held businesses, commercial real estate, and investment portfolios can increase substantially before a second death.
• Large life insurance payable to the surviving spouse. Sudden wealth increases can push an otherwise modest estate toward taxable territory on a longer time horizon.
• Estate plan contains a bypass trust that may be reformed. If the advisor recommends unwinding the bypass trust structure in light of OBBBA and relying on portability instead, having a timely filed Form 706 is the prerequisite.
• The surviving spouse expects to inherit from other sources. Pending inheritances can significantly change the projected estate size.

Situations where electing may be lower priority (though still worth analyzing):

• Surviving spouse is elderly and in poor health; estate accumulation time horizon is limited.
• All significant assets will pass to charity; no estate tax exposure regardless of exemption amount.
• Combined estate already substantially exceeds $30 million — portability reduces but does not eliminate exposure.

What to do now

If you are administering a trust following the death of a married person:

1. Confirm whether there is an executor and whether that person is you. Is there a will? A separate probate estate? Are you named executor in the will or another family member? The executor files Form 706. See Trustee vs. Executor: Your Dual Role When a Parent Dies.
2. Engage an estate attorney or estate-focused CPA within the first 60 days. The 9-month deadline arrives quickly during an active administration. You need time to inventory assets, obtain appraisals for real estate and business interests, and prepare a complete return.
3. Begin the trust asset inventory immediately. The Form 706 gross estate includes trust assets, individually titled assets, retirement accounts naming the spouse as beneficiary, and life insurance proceeds. See Trust Asset Inventory and Date-of-Death Valuation.
4. File Form 4768 before the 9-month deadline if you need more time. The 6-month extension is automatic. File it whenever there is any uncertainty — it preserves every option and forecloses nothing.
5. Model the surviving spouse's future estate before deciding not to file. "The estate is only $4 million" is not sufficient analysis. The decision turns on what the surviving spouse's estate might be worth 10, 20, or 30 years from now. A fee-only financial advisor can model those scenarios and quantify the expected value of preserving the DSUE.

Related guides

• Trustee vs. Executor: Your Dual Role When a Parent Dies
• Credit Shelter Trust Administration (Bypass Trust)
• Generation-Skipping Trust Administration
• Trust Asset Inventory and Date-of-Death Valuation
• Step-Up in Basis Guide (IRC § 1014)
• QTIP Trust Administration (Marital Trust)
• What Happens to a Revocable Trust When the Grantor Dies
• Can an Irrevocable Trust Be Modified?