Portability in Texas: Why a Surviving Spouse Should File Form 706 Even When No Tax Is Due

When a husband or wife dies in Texas, the surviving spouse is often told that no estate tax return is needed, because the estate is far below the federal exemption. That is usually true about the tax. But filing a federal estate tax return anyway can lock in the deceased spouse’s unused exemption. This is called portability, and for some families it is worth millions of dollars later on.

What Is Portability?

Every person has a federal estate tax exemption: the amount they can leave at death without paying estate tax. For people who die in 2026, it is $15 million (IRS). Anything above it can be taxed at rates up to 40%.

Most married couples leave everything to each other first. Property passing to a surviving spouse who is a U.S. citizen is not taxed at all, because of the unlimited marital deduction. The result is that the first spouse to die often uses none of their exemption. Portability lets the survivor keep that unused amount, which the IRS calls the deceased spousal unused exclusion, or DSUE, amount (26 U.S.C. § 2010(c)). The survivor can then use it for lifetime gifts or at their own death.

Why File a Return When No Tax Is Owed?

Because the survivor’s situation can change a great deal over the next 10, 20 or 30 years:

• An Austin home, a business, investments or rental properties can grow far faster than expected.
• The survivor may receive an inheritance, sell a business or remarry someone with assets.
• The exemption amount is set by Congress and can change in future law.

An example. A couple owns $8 million. The husband dies in 2026 and leaves everything to his wife, using none of his exemption. She files Form 706 and elects portability, keeping his $15 million. Twenty years later, her estate has grown to $18 million. Without portability, the amount above her own exemption could be taxed at 40%. With portability, she has her own exemption plus his $15 million, so the estate owes no federal estate tax.

For most families the return is a form of insurance: a modest cost now to protect against a large tax later.

How to Elect Portability

1. File Form 706. The executor or personal representative files a complete, properly prepared federal estate tax return (IRS Form 706). Portability is elected by filing it; the DSUE amount is calculated on the return.
2. File on time. The return is due 9 months after the date of death. A 6-month extension is available with Form 4768.
3. Value the assets. When everything passes to the surviving spouse or to charity, IRS rules generally let the return use good-faith estimates for those assets instead of a full appraisal of each one. You still need reliable values, and they are useful for the survivor’s income tax basis too.

What If We Missed the Deadline?

If the estate was below the filing threshold and only needed a return to elect portability, the IRS allows a late election for up to 5 years after the death under Revenue Procedure 2022-32. The return must be complete and must say at the top that it is filed under that revenue procedure to elect portability. After 5 years, the only route is asking the IRS for a private letter ruling, which is slow and expensive. If your spouse died within the last 5 years and no return was filed, it is worth a conversation now.

Things to Know Before You Rely on Portability

• Last deceased spouse. You can only use the unused exemption of your most recent deceased spouse. If you remarry and your new spouse dies before you, the first spouse’s DSUE amount can be lost.
• No inflation growth. The DSUE amount is fixed at the first death. Growth in the assets after that is not sheltered by it.
• No generation-skipping portability. Portability applies to the estate and gift tax exemption only, not the generation-skipping transfer tax exemption that matters for trusts for grandchildren.
• The IRS can look back. When the survivor uses the DSUE amount, the IRS can review the first spouse’s return to check it, even after the usual time limit has passed. Keep the records.

Portability or a Bypass Trust?

Before portability existed, couples preserved the first spouse’s exemption with a bypass (credit shelter) trust in their wills or living trust. A bypass trust still has advantages for some families: growth inside the trust is outside the survivor’s estate, it covers the generation-skipping exemption, and it protects the children’s inheritance in a blended family. Portability is simpler and gives the survivor a new income tax basis on more of the assets at the second death. Many plans now use a flexible design that lets the survivor choose after the first death, such as a disclaimer trust or a QTIP trust with a partial election. We explain how this works on our estate tax planning page.

How We Help

Turner Henington is a former KPMG tax accountant, so we handle the estate tax side of a Texas estate along with the probate. When a spouse dies, we can prepare or coordinate the Form 706 with your CPA as part of settling the estate, and review whether a late election is still available if one was missed. For couples planning ahead, we build the choice between portability and a trust into the plan. See estate planning for married couples.

Frequently Asked Questions

Does Texas have a death tax?

No. Texas has no estate tax and no inheritance tax. Only the federal estate tax applies, and only above the exemption.

Who files Form 706 to elect portability?

The executor or personal representative appointed by the court. If no one has been appointed, a person in possession of the deceased spouse’s property, often the surviving spouse, can generally file.

Do I have to file if the estate is under $15 million?

No tax return is required for the tax itself, but you must file one to keep the unused exemption. If you do not file, it is lost once the deadlines pass.

Can our CPA prepare the return?

Yes. Many CPAs prepare Form 706. We often work with a family’s CPA so the return lines up with the probate, the inventory and the plan for the surviving spouse.

Talk to us about portability. Call (512) 737-8404 or book a free consultation.

Sources

• IRS: What’s New, Estate and Gift Tax
• IRS: About Form 706
• IRS: Revenue Procedure 2022-32
• 26 U.S.C. § 2010 (unified credit and portability)

Written by Turner Henington, attorney and former KPMG tax accountant, Henington Lewis Law Firm PLLC. This article is general information, not legal or tax advice for your situation.