When one spouse passes away, the surviving spouse often inherits most or all of their assets. But few families realize that with the right planning, the surviving spouse can also inherit the deceased spouse’s unused federal estate tax exemption. This feature, known as portability, can dramatically reduce or even eliminate estate taxes for married couples.
Understanding how portability works—and how to preserve it—is key to effective estate planning, especially for couples with significant assets or property in New York.
What Is the Federal Estate Tax Exemption?
The federal estate tax applies to the total value of an individual’s estate at death, including real estate, investments, retirement accounts, and life insurance proceeds. However, each person has a lifetime estate and gift tax exemption, which shields a certain amount from taxation.
For 2025, the exemption is approximately $13.61 million per person, though it is scheduled to decrease by about half in 2026 unless Congress acts. Anything above that amount may be taxed at up to 40 percent.
This means a married couple can currently protect more than $27 million from federal estate tax—but only if they plan correctly to preserve both exemptions.
How Portability Works Between Spouses
Portability allows a surviving spouse to use the unused portion of their deceased spouse’s federal estate tax exemption. For example:
- A husband dies in 2025 with an estate worth $6 million.
- The federal exemption is $13.61 million, so his estate owes no tax.
- His executor files an estate tax return electing portability for the unused $7.61 million.
- The surviving wife now has her own $13.61 million exemption plus the $7.61 million carried over from her husband.
Her combined exemption is $21.22 million, which can significantly reduce or eliminate estate tax when she passes away.
How to Elect Portability
Portability is not automatic. The executor of the deceased spouse’s estate must file a federal estate tax return (Form 706) within nine months of death, or within fifteen months if an extension is granted. Even if the estate is well below the taxable threshold, the return must still be filed to preserve portability.
If no return is filed, the surviving spouse loses the right to use the deceased spouse’s unused exemption.
Late Election Relief
In recent years, the IRS has allowed some estates to make a late portability election under certain conditions, particularly when the estate was not required to file a return. However, this relief is time-sensitive and not guaranteed. It is always best to make the election promptly after death.
Why Portability Matters for New Yorkers
New York has its own separate estate tax with a much lower exemption—about $6.94 million in 2025—and it does not recognize portability. This means that even if you use portability for federal purposes, New York’s estate tax rules still apply independently.
Proper planning can help coordinate both systems. For instance, a credit shelter trust (also known as a bypass trust) can ensure that the first spouse’s assets remain protected from both federal and state estate taxes, while the surviving spouse still benefits from them during life.
Portability vs. Credit Shelter Trusts
Before portability became law, credit shelter trusts were the standard way to preserve both spouses’ exemptions. These trusts still play an important role, especially for high-value estates or when state-level taxes are a concern.
Here’s how they differ:
- Portability: Simple and flexible but only applies to federal taxes. The unused exemption transfers directly to the surviving spouse.
- Credit Shelter Trust: More complex but offers long-term protection from both federal and state estate taxes, creditor claims, and future spouses.
Many couples benefit from using both strategies: filing for portability to preserve the federal exemption and using a trust to handle New York’s estate tax exposure.
Common Mistakes to Avoid
Even with good intentions, some families lose portability benefits because of simple oversights. Common errors include:
- Failing to file the federal estate tax return on time
- Assuming portability happens automatically
- Neglecting to coordinate federal and state tax strategies
- Forgetting to update plans when the surviving spouse remarries
Because estate tax laws can change, it is important to review your plan regularly, especially after a death, marriage, or major financial event.
The Future of Portability
The current high federal exemption is temporary and will drop by roughly half on January 1, 2026, unless extended by Congress. Couples with estates approaching or exceeding $7 million per person should act now to lock in portability while the larger exemption is still available.
Speak to an Attorney
Portability can provide powerful estate tax savings, but only if it is planned and filed correctly. At the Law Offices of Juliet Cohen, P.C., we help couples across New York use every available strategy to minimize estate taxes and preserve family wealth. Our attorneys can coordinate both federal and state planning to ensure your estate is fully protected.
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