Estate tax exclusion portability is a provision in federal tax law. It allows a surviving spouse to inherit any unused portion of their deceased spouse’s federal estate tax exclusion.
This feature provides significant benefits for married couples, offering flexibility and substantial tax savings when transferring wealth.
However, understanding the details and limitations, especially in states like Connecticut with separate estate tax rules, is essential.
How Estate Tax Exclusion Portability Works
Under current federal law, every individual has an estate tax exclusion. In 2025, this exclusion is $13.99 million per individual. Portability allows the unused portion of one spouse’s exclusion to transfer to the surviving spouse.
For example, if a deceased spouse uses only $3 million of their federal exclusion, the remaining $10.99 million can transfer to the surviving spouse, creating a total exclusion of $24.98 million.
Steps to Preserve Portability
To take advantage of portability, the surviving spouse must file an estate tax return (Form 706) for the deceased spouse, even if no federal estate tax is owed. This filing must occur within nine months of the deceased spouse’s passing, though an extension may be requested.
Benefits of Portability
Portability simplifies estate tax planning for married couples by:
- Maximizing Tax-Free Transfers: The combined exclusion allows significant wealth to pass tax-free to heirs.
- Providing Flexibility: Couples can rely on portability without complex trust arrangements to preserve both exclusions.
- Reducing Complexity: Surviving spouses can manage their estate planning without the immediate need to restructure assets.
Portability and Connecticut Estate Tax
While portability applies to federal estate taxes, Connecticut’s state estate tax operates differently. Connecticut imposes its own estate tax with an exclusion that mirrors the federal exclusion. The exclusion for Connecticut’s estate tax is not portable between spouses.
Estate Tax Efficiency Strategies
In light of the high exclusion, in the big picture, a small percentage of estates will be subject to taxation. This being stated, we have a Westport, CT estate planning office, and this city is home to many high-net-worth individuals.
If taxes will impact your legacy, there are steps that can be taken to mitigate the burden. Estate tax efficiency strategies will typically revolve around the utilization of irrevocable trusts.
One of them is the qualified personal residence trust. With this type of trust, you can facilitate the eventual transfer of your home to a beneficiary at a significant tax discount.
A generation-skipping trust is another useful tool. As the name would imply, you skip a generation, naming your grandchildren as the beneficiaries. While your children are still living, they would be able to benefit from assets held by the trust.
Transfer taxes would apply when the assets are inherited by your grandchildren, but there would be just one round of taxation over two generations. These are a couple of examples, and there are other trusts that can provide estate tax efficiency.
Attend a Complimentary Learning Event!
We host learning events on an ongoing basis to help educate our neighbors. There is no charge, so this is a great opportunity to come away with some important information. To see the dates, visit this page: Glastonbury and Westport, CT Estate Planning Events.
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( By appointment only )