In estate planning, there is a surprisingly common misstep that can have costly consequences for some families. A recent Wall Street Journal article highlighted this estate tax error: the failure to file an estate tax return upon the death of the first spouse in a married couple, even when no federal estate tax is due. Neglecting this step can cause the surviving spouse to forfeit a valuable benefit known as estate tax portability.
What Is Estate Tax Portability?
Estate tax portability allows a surviving spouse to utilize any unused portion of the deceased spouse’s federal estate tax exclusion. The estate tax exclusion represents the amount an individual can transfer to their heirs without paying federal estate taxes.
For 2025, the federal estate tax exclusion amount is $13.99 million per person. (This threshold is set to rise to $15 million per person come 2026.) In theory, a married couple can shield up to $27.98 million in 2025. However, this higher combined exemption is only available if the unused portion of the first spouse’s exclusion is formally preserved and transferred to the surviving spouse.
Without portability, if the first spouse’s estate doesn’t use the full exclusion and no estate tax return is filed, the remaining exclusion is irrevocably lost. The surviving spouse would then be limited to their individual exemption amount, potentially subjecting their heirs to substantial estate tax liability.
The Common Estate Tax Error: Not Filing IRS Form 706
The critical misstep often arises from the assumption that no filing is necessary if the first spouse’s estate is below the federal exemption threshold. Because no tax is due, many families erroneously conclude that no action is required.
However, portability isn’t automatic. To secure the benefit, the executor of the deceased spouse’s estate must timely file IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, even if no estate taxes are owed. Filing this return effectively “locks in” the unused exclusion for the surviving spouse. Failing to file results in a permanent loss of this protection.
Why It Matters
Estate tax may feel like a distant issue for many families, especially given the current run of high federal estate tax exemption levels. But there are several reasons portability is worth preserving.
Changing Laws
Though recent legislation has made the tax exemption increase “permanent,” a future Congress and president could reduce the tax exemption. Families who think they’re far below the threshold now could suddenly find themselves in taxable territory if the exemption is reduced.
Growth in Assets
Real estate, retirement accounts, and other investments can appreciate significantly between the deaths of the first spouse and the surviving spouse. What is a nontaxable estate today may become a taxable estate in the future.
Flexibility for Heirs
Securing portability offers greater flexibility for the surviving spouse to make lifetime gifts, establish trusts, or provide for heirs without incurring federal estate tax.
How to Take Advantage of Portability
Families can ensure they don’t miss out on this benefit by taking a few key steps:
- File IRS Form 706 in a timely manner. Estates are not required to file an estate tax return if the deceased person’s estate is nontaxable (that is, the gross estate at the time of their death did not exceed the federal exemption amount for that year). However, if the surviving spouse wishes to elect portability, the executor of the decedent’s estate must file Form 706 – and generally must do so within five years of the decedent’s death.
(Note that if an estate is required to file an estate tax return because the value of the decedent’s gross estate exceeds the federal exclusion amount of that year, the estate’s executor must file within nine months of the first spouse’s death, though a six-month extension is available.)
In some cases, the IRS allows late filings if a mistake occurs. The executor must apply for a private letter ruling or other relief, but this can be costly and uncertain. Filing on time is always best. - Work with professionals. Estate planning attorneys and tax professionals such as accountants can guide families through filing requirements and help avoid overlooked opportunities. Professional help can prevent missed deadlines and costly mistakes.
The death of a spouse is an emotionally overwhelming event, and administrative requirements may not be a family’s immediate priority. Nevertheless, timely filing of Form 706 to preserve estate tax portability can represent one of the most valuable financial safeguards available to surviving spouses.
By filing the right paperwork when the first spouse passes away, families can avoid a common estate tax error and preserve an estate tax cushion that could save them millions. In estate planning, sometimes the most valuable asset isn’t just money — it’s the foresight to file the right form at the right time. Contact the experienced estate attorneys at Kurre Schneps to see how we can help you avoid this estate tax error.
