After a spouse dies, the surviving spouse may hear that the estate is below the federal estate tax filing threshold and conclude that no further estate tax review is needed. That conclusion can overlook a separate opportunity to preserve the deceased spouse's unused exclusion for the survivor. Estate tax portability allows an eligible unused exclusion amount to become available for the surviving spouse's later taxable transfers. For married couples in Westlake Village, reviewing this option after the first death can be relevant even when the immediate administration does not involve an estate tax payment.

The IRS explains that electing portability requires filing a federal estate tax return, Form 706, even when the estate would otherwise be too small to require that return. The unused amount does not automatically transfer merely because the couple was married or because property passes to the survivor. The estate's representative must make the election through a properly prepared and timely filed return. A useful first question for the legal and tax advisers is therefore whether a filing is being considered solely to preserve portability or is independently required by the estate's size and other relevant factors.

Timing deserves early attention because the ordinary Form 706 due date is nine months after death, with a filing extension available when properly requested. Certain estates that were not otherwise required to file may qualify for simplified late-election relief under Revenue Procedure 2022-32. That procedure permits qualifying filings on or before the fifth anniversary of death, subject to its eligibility and filing requirements. It should not be treated as a universal five-year deadline, particularly where the estate had an independent obligation to file a federal estate tax return.

Evaluating portability also requires understanding which assets belong in the federal estate tax calculation, since that calculation is not limited to property passing through a probate case. IRS guidance identifies a range of potentially included interests, such as real estate, securities, insurance, trusts, and business interests. A family that looks only at the probate inventory may therefore have an incomplete starting point for the federal review. Gathering ownership records and relevant valuations helps the advisers assess the actual circumstances instead of relying on a general impression that most property passed outside probate.

A planning discussion can then consider whether preserving an additional exclusion may be useful in light of the surviving spouse's circumstances and the cost of preparing the return. Questions might include anticipated asset growth, a possible business sale, future inheritances, and the survivor's intended lifetime gifts, without assuming those events will occur. Comparing realistic scenarios can make the decision more understandable than focusing only on today's account balances or on a single projected tax result. The discussion should also identify who will coordinate the work so that an election is not overlooked because each professional assumes someone else is handling it.

Estate tax portability is one part of the review following a spouse's death, and its usefulness should be assessed alongside the existing estate plan and the survivor's broader objectives. If a return was already filed, obtaining a complete copy and confirmation of the election provides a clearer basis for future planning than relying on a recollection that the taxes were handled. If no return was filed, the relevant dates and eligibility facts can be reviewed to determine whether an available filing or relief procedure should be considered. This article provides general information, not legal advice, and a coordinated legal and tax review is necessary to evaluate a particular estate.

Key takeaways

• Preserving a spouse's unused exclusion requires a portability election on Form 706. IRS estate tax guidance

• Filing requirements and ordinary deadlines deserve early review. IRS estate tax frequently asked questions

• Simplified late-election relief applies only to qualifying estates. IRS Revenue Procedure 2022-32

For assistance reviewing estate planning issues after a spouse's death and coordinating with your tax adviser, Call Westlake Law Group at (818) 444-2022. The office is located at 30699 Russell Ranch Road, North Building, Suite 210, Westlake Village, California. Virtual consultations are available throughout Southern California.