Federal Estate Tax Portability in New Jersey

Portability calls typically come from surviving spouses or their advisors in the months following a death. The first spouse to die left the entire estate to the surviving spouse, which used none of the deceased spouse's federal estate-tax exclusion. The deceased spouse's exclusion — currently several million dollars — would simply expire if nothing is done. The Form 706 federal estate-tax return that elects portability has a deadline. Without portability, the surviving spouse's eventual estate may face significant federal estate tax that careful planning may have reduced or avoided.

Portability under federal law (IRC § 2010(c)source) allows the surviving spouse to inherit the deceased spouse's unused federal estate-tax exclusion (DSUE). The mechanism requires filing Form 706 within nine months of the first death (with a possible six-month extension), even if no estate tax is owed. The IRS provides a streamlined "late portability election" procedure under Rev. Proc. 2022-32source for estates that didn't have a Form 706 filing requirement, up to five years after the first death. The work is timely filing — and modeling whether the portability election plus the surviving spouse's own exclusion produces a better outcome than alternative strategies (credit-shelter trusts, lifetime gifting, etc.).

What Is Portability?

Portability is a provision of federal tax law (IRC § 2010(c)(4)source) that allows a surviving spouse to use the deceased spouse's unused estate tax exemption (formally called the "deceased spousal unused exclusion amount" or DSUE). Combined with the unlimited marital deduction under IRC § 2056source, portability can preserve exemption amount not used by the first spouse to die. With portability, the surviving spouse can add the DSUE to their own exemption, increasing the amount that can pass to heirs free of federal estate tax.

Under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, IRC § 2010(c)(3)source sets the federal estate tax basic exclusion amount at $15 million per individual for 2026, with inflation indexing after 2026. If the first spouse dies with a taxable estate of $3 million, the unused exemption (DSUE) would be $12 million. Through portability, the surviving spouse could combine their own $15 million exemption with the $12 million DSUE, allowing a total of $27 million to pass free of federal estate tax before later indexing.

How to Claim Portability

Portability is not automatic. To claim the DSUE, the executor of the deceased spouse's estate must file a federal estate tax return (IRS Form 706) even if the estate is below the filing threshold and owes no tax. This is a critical point that many families miss. Contact counsel promptly after a spouse's death; if Form 706 is not filed or late relief is unavailable, the DSUE can be lost.

Filing Requirements

• Timely filing: Form 706 must be filed within nine months of the date of death, with a six-month extension available upon request. For estates that are not otherwise required to file, the IRS has provided relief through Revenue Procedure 2022-32source, which allows a simplified late portability election for returns filed within five years of the date of death
• Complete return: The Form 706 must report the fair market value of all assets in the deceased spouse's estate, including jointly held property, retirement accounts, life insurance, and other assets that may pass outside of probate
• DSUE calculation: The return must include the computation of the DSUE amount, which is the deceased spouse's applicable exclusion amount minus the amount used against taxable transfers during life and at death
• No tax payment required: If the estate is below the filing threshold, no estate tax is due. The purpose of the return is solely to elect portability and establish the DSUE amount

Portability vs. Credit Shelter Trusts

Before portability was enacted in 2010 and made permanent in 2012, married couples had to use a credit shelter trust (also called a bypass trust or B trust) to preserve both spouses' exemptions. The credit shelter trust was funded at the first death with assets up to the exemption amount, and those assets, including all future appreciation, passed to the ultimate beneficiaries outside the surviving spouse's taxable estate.

Portability changed the landscape by allowing couples to preserve both exemptions without a trust. However, portability and credit shelter trusts are not equivalent, and there are important differences:

When Portability Alone Is Enough — and When It Is Not

For many New Jersey families whose combined estate sits comfortably below the federal exemption, electing portability and stopping there can be a reasonable plan. The logic is simple: if the primary concern is preserving both spouses' exemptions in case the law tightens or the estate grows, filing Form 706 captures the deceased spouse's exclusion at a fraction of the cost and complexity of trust administration. For a couple whose net worth is unlikely to approach the exemption in either spouse's lifetime, that simplicity is a genuine feature, not a shortcut.

The honest qualifier is that "sufficient" depends on more than today's balance sheet. Portability freezes the deceased spouse's exclusion at a dollar figure; it does not shelter future growth. A surviving spouse who inherits appreciating real estate, a closely held business, or a concentrated investment position can watch a comfortably-below-exemption estate climb toward exposure over a long widowhood — and the ported amount will not grow with it. Portability also does nothing for creditor protection, generation-skipping planning, or controlling who ultimately inherits. For estates with meaningful real estate, a business interest, blended-family dynamics, or net worth in the range where appreciation could matter, the better question is not "portability or a trust" but "portability plus what." That is a modeling exercise, and it is the conversation we have at the consultation rather than a default we assume.

When a Trust Is Still Needed

Despite the availability of portability, a credit shelter trust or other trust structure remains the better choice in several situations:

• Estates that are large enough that future appreciation on the deceased spouse's share could create estate tax exposure for the surviving spouse
• Families who want creditor protection for the deceased spouse's assets
• Situations where generation-skipping transfer tax planning is important
• Blended families where the deceased spouse wants to help ensure that their children ultimately receive the trust assets, regardless of the surviving spouse's future decisions
• Families with ties to states that impose a state-level estate tax with no portability provision

The Portability Filing as a Safety Net

Even for families that use a credit shelter trust, filing Form 706 to elect portability serves as a valuable safety net. If the credit shelter trust is underfunded (because assets were not properly retitled into the trust before death, for example), the portability election helps preserve the deceased spouse's unused exemption. This "belt and suspenders" approach provides an additional safeguard against both planning errors and future changes in the law.

Frequently Asked Questions About Estate Tax Portability

What is portability?

It allows a surviving spouse to use the deceased spouse's unused federal estate tax exemption (DSUE). The basic exclusion amount is $15 million per individual for 2026 under the OBBBA and indexed after 2026.

How do I claim it?

File IRS Form 706 within nine months of death, with a six-month extension available on request. Filing is required even if the estate owes no tax and falls below the filing threshold. If Form 706 is not filed and no late-election relief applies, the DSUE is ordinarily lost — though estates that were not otherwise required to file may qualify for the simplified late election under Rev. Proc. 2022-32, up to five years after the first death.

Is the $15M exemption fixed forever?

No tax statute is immune from future congressional change. Under current federal law, the 2026 basic exclusion amount is $15M and inflation indexing is scheduled to start in 2027.

Can the GST exemption be ported?

No. The generation-skipping transfer tax exemption cannot be transferred. For GST planning, a credit shelter trust is needed.

What if I remarry?

If you remarry and your new spouse dies first, you lose the deceased spousal unused exclusion (DSUE) from your first spouse — it is replaced by the new spouse's DSUE, if any. A credit shelter trust avoids this risk, because trust assets are not affected by the surviving spouse's remarriage. This matters most for a younger surviving spouse with decades of potential remarriage ahead.

Related Estate Planning Resources

• Estate Planning Overview
• NJ Inheritance and Estate Taxes
• Irrevocable Trusts — credit shelter trust alternatives
• Revocable Living Trusts
• Disclaimer Trusts — flexible post-death tax planning
• Plans and Packages — flat-fee pricing

Preserve Your Family's Combined Exemption

Filing Form 706 to elect portability is one of the most important — and most frequently overlooked — steps in post-death estate administration. Whether you need to file a portability election, evaluate whether your existing plan preserves both exemptions, or determine whether a credit shelter trust is the better approach, Simon Law Group provides clear, practical guidance for New Jersey families.

Call (800) 709-1131 to schedule your consultation, or get started online.

Frequently Asked Questions

What is federal estate tax portability?

Portability allows a surviving spouse to use the deceased spouse's unused federal estate tax exemption (called the DSUE — deceased spousal unused exclusion). Under IRC § 2010(c), as amended by the One Big Beautiful Bill Act, the basic exclusion amount is $15 million per individual for 2026 and indexed after 2026. If the first spouse dies using only $3 million of their exemption, the remaining $12 million can be 'ported' to the surviving spouse — giving them a combined exemption of $27 million before later indexing. But portability is not automatic: Form 706 must be filed.

How do I claim portability in New Jersey?

The executor must file IRS Form 706 (federal estate tax return) within nine months of death, with a six-month extension available. This filing is required even if the estate owes no tax and is below the filing threshold. If Form 706 is not filed, the DSUE is generally lost. For estates that missed the deadline, Revenue Procedure 2022-32 allows a simplified late portability election within five years of death for qualifying estates.

Is the $15 million estate tax exemption permanent?

Under current federal law, the $15 million amount has no scheduled sunset. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, set the federal estate and gift tax exemption at $15 million per individual for 2026, with indexing after 2026. Congress can still change the exemption by later legislation.

Can the GST tax exemption be ported?

No. The generation-skipping transfer (GST) tax exemption cannot be transferred to a surviving spouse through portability. If GST planning is important — for example, if you want to leave assets to grandchildren or establish a dynasty trust — a credit shelter trust is the appropriate vehicle, not portability alone.

What happens to portability if I remarry?

If the surviving spouse remarries and the new spouse dies first, the DSUE from the first deceased spouse is lost — it is replaced by the new deceased spouse's DSUE (if any). A credit shelter trust avoids this risk entirely because the trust assets are not affected by the surviving spouse's remarriage. This is a significant consideration for younger surviving spouses.