Imagine building a successful company and a comfortable nest egg for your family over a lifetime. You aren't a billionaire, so you may have dismissed estate taxes as something that only affects the ultra-wealthy. When a spouse passes away, the focus is rightfully on managing grief and keeping the business running, not on filing IRS forms for an estate that doesn't owe current taxes.
However, years later—when selling the business or when the surviving spouse passes away—heirs can be blindsided by a tax bill that strips away a significant portion of their inheritance. The culprit? A missed deadline for a simple paperwork election that should have been made years earlier. For many married couples, the failure to "port" a deceased spouse’s tax exemption is a million-dollar mistake that is entirely preventable.
To understand the high stakes of estate planning in 2026, we have to look at the current "unified" federal estate and gift tax system. Under the One Big Beautiful Bill Act (OBBBA), the government provides every individual with a massive "exemption"—the amount of money or property you can pass on to your heirs tax-free. For the 2026 tax year, this exemption has reached a historic high of $15 million per person. For a married couple, this creates a combined tax-free zone of $30 million.
There is a technical trap: if the first spouse leaves their $15 million estate to the survivor, they haven't "used" their own tax exemption. Unless the surviving spouse takes a specific legal step, that $15 million exemption dies with the first spouse, leaving the survivor with only their own $15 million to cover the entire combined estate. If the business grows or laws change, that limit can be reached much faster than anticipated.
The "step" that saves the day is called the portability election. It allows the executor of a deceased spouse’s estate to "port"—or transfer—the unused portion of that spouse’s $15 million exemption to the surviving spouse. In tax jargon, this transferred amount is known as the Deceased Spousal Unused Exclusion (DSUE).
Once you have successfully ported the exemption, you essentially carry a $30 million shield. You can use this combined limit to make tax-free gifts to your children while you are alive or to shield your entire estate from the 40% federal estate tax when you pass away. But here is the catch: portability is not an automatic right. It is a "privilege" that must be claimed on a timely filed tax return, even if the estate is small and owes zero dollars in tax. If the paperwork isn't filed, the exemption is lost.
The primary deadline for claiming portability is rooted in the standard estate tax filing rules. Generally, the executor must file IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, within nine months of the date of death. While you can request an automatic six-month extension by filing Form 4768, that only buys you a total of 15 months. If you miss that window and the estate was large enough to be required to file, the portability election is irrevocably lost.
Fortunately, the IRS has recognized that many "smaller" estates (those worth less than the $15 million filing threshold) may not realize they need to file a return just to claim portability. Revenue Procedure 2022-32 creates a significant "safety net."
If the estate is not otherwise required to file a tax return, the executor has until the fifth anniversary of the spouse's death to file Form 706 and elect portability. To use this extension, the return must be complete and include a specific statement at the top: "FILED PURSUANT TO REV. PROC. 2022-32." If you fail to include that phrase or miss the five-year mark, you are back to the "zero-exemption" danger zone.
There are three primary reasons why even non-wealthy families should file to port an exemption:
The "Non-Resident" Exclusion:
The portability election is a privilege reserved exclusively for citizens and residents of the United States. If the deceased spouse was not a U.S. citizen or resident, the executor generally cannot make the portability election, regardless of how quickly they file the paperwork. If you have a multi-national family or business, you must use alternative (and often more complex) trust structures to protect your combined wealth from the 40% estate tax.
Disclaimer: This content is for educational and informational purposes only and does not constitute formal tax, legal, or professional advice. Federal tax laws, including those recently overhauled by the One Big Beautiful Bill Act (OBBBA), are highly technical and subject to frequent change, meaning strategies that work for one business may not be appropriate for another. Readers should always consult with a qualified tax professional to verify how these rules apply to their specific financial situation and to ensure all positions are backed by current primary legal authority, rather than relying on generalized summaries. Furthermore, the IRS strictly requires "contemporaneous" (created at the time) documentation to support any claim; failing to maintain proper records as required by the Internal Revenue Code can result in the complete disallowance of deductions and the imposition of accuracy-related penalties.