Portability is an important yet often overlooked aspect of federal gift and estate tax planning. It allows a surviving spouse to make use of their deceased spouse’s unused estate tax exclusion, potentially reducing or even eliminating federal estate taxes upon their own death; however, it can overfund the surviving spouse’s estate. Understanding how portability works and how it fits into your estate plan can help ensure that your assets are protected and passed down efficiently to your heirs. An Indianapolis attorney at Frank & Kraft explains how portability fits into your Indiana estate plan.
What Is Portability?
Portability refers to the ability of a surviving spouse to inherit and use the unused portion of their deceased spouse’s federal estate tax exemption. The federal estate tax exemption is the amount an individual can transfer at death without incurring estate taxes. As of 2025, the federal estate tax exemption is $13.99 million per individual, meaning a married couple can potentially shield up to $27.98 million from estate taxes if portability is properly utilized. Without portability, any unused portion of the exemption would be lost when the first spouse passes away. Portability allows the surviving spouse to carry over the deceased spouse’s unused exemption and add it to their own, providing a larger total exemption.
How Does Portability Work?
To take advantage of portability, the Executor of the deceased spouse’s estate must file IRS Form 706, the United States Estate Tax Return, within nine months of the decedent’s passing (with a possible six-month extension). Even if no estate tax is owed, this step is required to elect portability and preserve the unused exemption for the surviving spouse. Once elected, the deceased spouse’s unused exemption amount (DSUE) is available to the surviving spouse to offset future estate and gift taxes. This can be particularly useful for high-net-worth individuals who may exceed the exemption amount at the time of their own passing.
Portability and the Federal Gift Tax
Portability is not limited to estate taxes; it also applies to lifetime gifts. The federal gift tax shares the same exemption as the estate tax, meaning that if a surviving spouse has a DSUE from their late spouse, they can use that amount to make tax-free gifts during their lifetime. This can be a strategic way to reduce the taxable estate while benefiting heirs sooner rather than later.
Portability and Your Indiana Estate Plan
While portability provides significant benefits, there are important limitations and considerations to keep in mind. For example, portability is not automatic. The Executor must actively elect portability by filing Form 706, even if no estate tax is due. Failure to file results in the loss of the unused exemption. In addition, state taxes operate separate from federal taxes regarding portability. Some states impose their own estate tax, and most do not allow portability. If you live in a state with an estate tax, additional planning may be necessary. Also, portability does not apply to Generation-Skipping Transfer (GST) Tax. The GST tax exemption, which applies to transfers to grandchildren or more remote descendants, is not portable. Special planning is required if GST tax planning is a concern. Remarriage can also impact portability. If the surviving spouse remarries and their new spouse also predeceases them, only the most recent spouse’s DSUE is available. This means portability from the first marriage could be lost.
Most importantly, relying on portability can leave the surviving spouse with an over-funded estate because portability only delays the payment of federal gift and estate taxes. Without careful estate planning, your surviving spouse could end up paying the same – or even more – in federal gift and estate taxes.
Can We Help You Incorporate Portability into Your Indiana Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you would like assistance incorporating portability into your Indiana estate plan, contact an experienced Indianapolis estate planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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