How Portability Works
When the first spouse dies, their unused federal estate tax exemption can be transferred (ported) to the surviving spouse. The surviving spouse then has their own exemption plus the deceased spouse's unused amount — potentially sheltering up to $27.22 million from estate tax in 2024.
The Critical Requirement: Timely Estate Tax Return
Portability does NOT happen automatically. The executor must file a federal estate tax return (Form 706) within 9 months of death (extendable to 15 months) to make the portability election — even if no estate tax is owed. Missing this deadline forfeits the ported exemption. The IRS has provided a simplified late portability election procedure for estates that missed the deadline, but timely filing remains important.
Portability vs. Bypass Trust
- Portability is simpler — no trust drafting or administration
- Bypass trust locks in the exemption amount at the first death — important if exemptions decrease (as the 2025 sunset may cause)
- Bypass trust assets may not receive a stepped-up basis at the second death
- Both strategies should be evaluated with an estate planning attorney
Disclaimer: This glossary entry is for general educational purposes only and does not constitute legal or tax advice. Laws change frequently and vary by individual circumstances. Consult a licensed California attorney or CPA for guidance on your specific situation.