Budgeting Financial Planning Estate Planning The Portability of the Estate Tax Exemption Learn About This Tax Election for Surviving Spouses By Julie Garber Julie Garber Julie Garber is an estate planning and taxes expert with over 25 years of experience as a lawyer and trust officer. She is a vice president at BMO Harris Wealth management and a CFP. Julie has been quoted in The New York Times, the New York Post, Consumer Reports, Insurance News Net Magazine, and many other publications. learn about our editorial policies Updated on June 10, 2022 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article The Definition of Portability The Federal Estate Tax Exemption The History of Portability Examples of Portability Frequently Asked Questions (FAQs) Photo: Alistair Berg / Getty Images President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act into law on December 17, 2010. Significant modifications were made to the rules governing federal estate taxes, gift taxes, and generation-skipping transfer taxes as part of this law, and portability of the estate tax exemption was introduced for the first time. The Definition of Portability Portability is only available to married couples. The amount of the estate tax exemption that was not used for the deceased spouse's estate can be transferred to the surviving spouse if the first spouse dies, and the value of their estate doesn't use up all of the exemption. The surviving spouse can use the deceased spouse's unused estate tax exemption plus their own exemption when the surviving spouse later dies. Note This is a federal exemption. Only Hawaii and Maryland offer portability of their state estate tax exemptions as of 2022. The Federal Estate Tax Exemption The federal estate tax exemption is indexed for inflation, so it increases periodically, usually yearly. It's $11.58 million for deaths occurring in 2020, up from $11.4 million in 2019. It's basically $11 million plus inflation adjustments. Note Exemptions are subtracted from the value of an estate, and only the balance is subject to the estate tax. Very few estates have to pay this tax as a result. The History of Portability The TRUIRJCA introduced the concept of "portability" of the federal estate tax exemption between married couples for the 2011 and 2012 tax years. Then President Obama signed the American Taxpayer Relief Act (ATRA) into law on January 2, 2013, and ATRA made this portability feature of the estate tax permanent as of 2013. Note Portability should remain a permanent part of federal estate tax law going forward unless Congress takes steps to repeal this provision. Thanks to ATRA, it no longer has to be renewed to remain in effect. Examples of Portability The option of portability can make a significant difference when it comes to taxation of an estate. The Estate Tax Without Portability Assume Bob and Sue are married and all their assets are jointly titled. Their net worth is $18 million. Bob dies first in 2020 and the federal estate tax exemption is $11.58. Portability of the estate tax exemption between spouses is not in effect. His estate won't need to use any of his $11.58 estate tax exemption when Bob dies because all the assets are jointly titled. The unlimited marital deduction allows Bob's share of the joint assets to be automatically transferred to Sue by right of survivorship without incurring any federal estate taxes. The federal estate tax exemption is still $11.58 million when Sue dies. The estate tax rate is 40%, and Sue's estate is still worth $18 million. Bob's $11.58 million estate tax exemption went unused and Sue couldn't claim it without portability, so Sue can only pass on $11.58 million to her heirs free from federal estate taxes when she dies. Sue's estate will owe about $1,064,000 in estate taxes after her death: $18,000,000 estate less the $11.58 million exemption = $6.42 million taxable estate$6.42 million taxable estate x 40% estate tax rate = $2.568 million in taxes due The Estate Tax With Portability Let's assume the same scenario: Bob and Sue are married and have all of their assets jointly titled. Their net worth is $18 million. Bob dies first and the federal estate tax exemption is $11.58 million on the date of Bob's death. Portability of the estate tax exemption between spouses is in effect, so when Sue dies: $18 million estate less $23.16 million in two estate tax exemptions = $0 taxable estate Bob's estate won't have to use any of his estate tax exemption because all their assets are jointly titled and they pass directly to Sue by right of survivorship. Assume that the federal estate tax exemption is still $11.58 million at the time of Sue's later death. The estate tax rate is still 40%, and Sue's estate is still worth $18 million. Using the concept of portability between spouses, Bob's unused $11.58 million estate tax exemption would be added to Sue's $11.58 million exemption, which gives Sue a $23.16 million exemption when the two are added together. Note Sue has "inherited" Bob's unused estate tax exemption and she can pass on $18 million free from federal estate taxes at the time of her death. Sue's estate will not owe any federal estate taxes at all. Portability of the estate tax exemption will save Bob and Sue's heirs about $2.568 million in estate taxes. Frequently Asked Questions (FAQs) How do I claim portability of the exemption? You don't "inherit" your spouse's unused exemption automatically. You must file IRS Form 706, the United States Estate and Generation-Skipping Transfer Tax Return, to make the election to add their unused exemption to your own, even if the estate doesn't owe a tax. When should I file to claim portability? Form 706 must be filed within nine months of the date of death or within 16 months if an extension to file the return is requested. Some spouses can claim an exception from this rule if the estate doesn't have to file a tax return because its value doesn't exceed the exemption. Speak with a tax attorney to find out whether you qualify. What is the estate tax exemption for 2022 and going forward? The Tax Cuts and Jobs Act (TCJA) effectively doubled the federal estate tax exemption in 2018. It had been $5.49 million in 2017, and it's $12.06 million in 2022, but the TCJA expires at the end of 2025, so the exemption could plummet to roughly half its value at that time unless Congress takes steps to renew the legislation. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Internal Revenue Bulletin: 2012-28." State of Hawaii Department of Taxation. "Instructions for Form M-6 Hawaii Estate Tax Return." The American College of Trust and Estate Counsel. "State Death Tax Chart." IRS. "Estate Tax." IRS. "Part 4. Examining Process / Chapter 25. Estate and Gift Tax / Section 5. Technical Guidelines for Estate and Gift Tax Issues." IRS. "Frequently Asked Questions on Estate Taxes." Tax Policy Center. "Fixing the TCJA: Restoring The Estate Tax’s Exemption Levels."