Estate Tax Portability in California: The 706 Most Families Skip
Estate size this page covers: married couples whose combined estate is near or above $15 million, or growing toward it. Above $30 million, portability is one piece of a larger plan. See ultra high net worth estate planning in California.
Short answer – Portability lets a surviving spouse “inherit” the deceased spouse’s unused federal estate-tax exemption, but only if the estate files IRS Form 706 to elect it, even though no tax is due and no 706 is otherwise required. Most families under about $15 million combined don’t need it. And an estate not required to file has up to five years to make a late portability election (Rev. Proc. 2022-32), not two.
Figures verified against IRC § 2010(c), Rev. Proc. 2022-32, and the 2026 federal exemption ($15,000,000/person under P.L. 119-21), 2026. This page is general information, not legal advice for your situation.
What a missed election costs a surviving spouse
Say a Thousand Oaks couple has a combined estate of $22 million: a home, a business, and investments. The husband dies in 2026 and leaves everything to his wife. Because transfers between spouses are tax-free (the unlimited marital deduction), his estate uses none of his $15,000,000 exemption. It’s all “unused.”
If his executor files a Form 706 and elects portability, the wife now has her own $15,000,000 plus his unused $15,000,000: $30,000,000 of exemption. When she later dies, her $22 million estate passes with no federal estate tax. If nobody files that 706, she’s left with only her own $15,000,000, and roughly $7 million of her estate is now exposed to a 40% estate tax: a potential $2.8 million bill that a single election could have prevented. For a family right at or above the exemption, this is one of the highest-stakes pieces of paper in estate administration.
Every person has a federal estate-tax exemption: $15,000,000 in 2026, set by the One Big Beautiful Bill Act with no scheduled sunset. When the first spouse dies without using all of theirs, the leftover amount is called the DSUE: the Deceased Spousal Unused Exclusion. Portability is the rule that lets the surviving spouse add that DSUE on top of their own exemption.
Portability isn’t automatic. To capture the DSUE, the executor of the first spouse’s estate has to file a Form 706 (the federal estate tax return) and check the box electing portability, even though the estate owes zero tax and would never otherwise file a 706. Skip the filing, and the unused exemption is gone for good.
Who needs to elect it
California has no state estate tax and no state inheritance tax, so portability is purely a federal question here, and the numbers decide who needs it. A couple comfortably under about $15 million combined probably doesn’t need portability at all, because the survivor’s own single exemption already covers the estate, and filing a 706 you don’t need costs money. A combined estate near or above about $15 million deserves serious thought, because filing the 706 preserves a second exemption that could save the family millions.
A growing estate, or a survivor likely to remarry, can justify the filing even for a couple a bit under today’s line. Assets appreciate, and remarriage complicates the picture, so capturing the DSUE now costs little next to what it can save.
The deadline is five years, not two
A widow who didn’t realize any of this until three years after her husband died still has time to fix it. The normal Form 706 deadline is nine months after death (with a six-month extension). But for a portability-only election, an estate that isn’t otherwise required to file a 706, the IRS grants a much longer window. Under Rev. Proc. 2022-32, the executor has up to five years from the date of death to file a late 706 and elect portability. Don’t let anyone tell you the window closed at two years. That was the older rule, and it was extended.
What the return has to show
Filing a timely, complete and properly prepared Form 706 elects portability automatically, unless the executor opts out on the return (Treas. Reg. § 20.2010-2(a)(2), (3)). “Complete and properly prepared” means prepared under the Form 706 instructions and the return regulations (§ 20.2010-2(a)(7)(i)). An estate that files only to elect portability gets one break: for property going to the spouse or to charity, it can list the assets without valuing each one, as long as the executor uses due diligence to estimate the whole gross estate and reports it in the right range. The break doesn’t apply when the value of the marital or charitable share affects what anyone else receives, or when a partial QTIP election or partial disclaimer is made (§ 20.2010-2(a)(7)(ii)). The estate of a nonresident who wasn’t a U.S. citizen can’t elect portability at all (§ 20.2010-2(a)(5)).
How the five-year late election works
Rev. Proc. 2022-32 covers an executor whose decedent died after 2010, was survived by a spouse, and was a U.S. citizen or resident, when the estate wasn’t required to file a 706 based on the gross estate and adjusted taxable gifts and didn’t file on time. The executor files a complete and properly prepared Form 706 on or before the fifth anniversary of the death, with “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)” at the top. If it later turns out the estate was required to file, the relief is void from the start. An estate that was required to file can’t get an extension to elect portability at all (Treas. Reg. § 20.2010-2(a)(1)).
The late election doesn’t reopen the survivor’s refund deadlines. If the survivor has already paid gift or estate tax that the DSUE would have reduced, a refund claim still has to be filed within the normal period. Rev. Proc. 2022-32 treats a claim filed in time, in anticipation of the late 706, as a protective claim.
How much exemption the survivor gets
A spouse who dies in 2026 passes on at most $15 million, and that figure never grows. The DSUE is the lesser of two numbers: the basic exclusion amount in effect in the year the first spouse died, or that spouse’s applicable exclusion amount minus the taxable estate and adjusted taxable gifts (IRC § 2010(c)(4) and Treas. Reg. § 20.2010-2(c)(1)).
Taxable gifts the first spouse made during life shrink the DSUE, which is what happened in Sower below. And the DSUE is frozen at death, while the survivor’s own basic exclusion is adjusted for inflation every year after 2026 (IRC § 2010(c)(3)(B)). When the first spouse’s estate passes into a QDOT for a non-citizen survivor, the DSUE is recomputed later as QDOT tax events happen. See the QDOT rule.
The generation-skipping transfer tax exemption doesn’t port. IRC § 2631(c) ties it to the basic exclusion only, so a first spouse who wants to use that exemption has to allocate it at the first death, for example to a bypass trust, or through a reverse QTIP election under IRC § 2652(a)(3).
Where portability goes wrong
The IRS can check the number after the first estate is closed
Electing portability doesn’t make the DSUE final. IRC § 2010(c)(5)(B) lets the IRS examine the first spouse’s return at the survivor’s death, with no time limit on the review, to check the DSUE, even after its limitations period has run. It can’t assess new tax against the first estate once that period has run.
In Estate of Sower v. Commissioner (2017) 149 T.C. 279, Frank Sower died in 2012. His estate reported a DSUE of $1,256,033, elected portability, and got a letter saying the return was accepted as filed. When his widow, Minnie, died in 2013 and her estate claimed that DSUE, the IRS examined Frank’s return, found lifetime taxable gifts that hadn’t been counted, and cut the DSUE to $282,690, producing a $788,165 deficiency for Minnie’s estate. The Tax Court held IRC § 2010(c)(5)(B) let the IRS examine Frank’s return after his limitations period had run, because it assessed no tax against Frank’s estate, and that the “accepted as filed” letter was neither a closing agreement nor a basis for estoppel.
A shortcut return can forfeit the election
A bare-bones return saves effort only when the estate qualifies for the shortcut. In Estate of Rowland v. Commissioner (2025) T.C. Memo. 2025-76, Fay Rowland died in 2016. Her executor filed a portability return after the extended due date, relying on the late-election safe harbor then in effect, and estimated a $3 million gross estate to compute a DSUE of $3,712,562. Her trust left specific bequests, a share to a family foundation, a formula share to her husband and the residue to trusts for grandchildren. Because property went to people other than her husband and charity, and the marital and charitable shares affected what the grandchildren got, the estimate-only shortcut wasn’t available. The return wasn’t complete and properly prepared, so no portability election was made, and her husband’s estate lost the DSUE. Substantial compliance and estoppel arguments failed.
Don’t do this: file a bare-bones portability return that estimates the whole estate when part of it goes to someone other than the spouse or charity. In Estate of Rowland (T.C. Memo. 2025-76) the estimate-only return wasn’t complete and properly prepared, no portability election was made, and the husband’s estate lost a $3,712,562 DSUE. Value and report every asset that doesn’t qualify for the shortcut.
Remarriage can strand the exemption
A survivor who remarries can lose a DSUE that was safe before. Only the DSUE of the survivor’s last deceased spouse counts (Treas. Reg. § 20.2010-3(a)). Remarrying doesn’t change who that is, and neither does a divorce from the new spouse. A new spouse who dies first does: that spouse becomes the last deceased spouse, and if that spouse’s estate has no DSUE or doesn’t elect portability, the survivor has none, even though the first spouse’s DSUE was available before.
The protection is to use the DSUE during life. When a surviving spouse makes a taxable gift, the DSUE is applied before the survivor’s own exclusion (Treas. Reg. § 25.2505-2(b)), and DSUE already applied to gifts stays applied even if a later spouse becomes the last deceased spouse (§ 20.2010-3(b)). A survivor planning to remarry who has a large DSUE should talk about lifetime gifts first. Gifts at this level go on a Form 709.
An Oklahoma court ordered a reluctant administrator to file the 706
In In re Estate of Vose (Okla. 2017) 390 P.3d 238, the administrator, the decedent’s son from an earlier marriage, refused to file a 706 to elect portability for his stepfather. The Oklahoma Supreme Court upheld an order requiring him to file it, holding that federal law didn’t preempt the order, that a 2006 antenuptial agreement written before portability existed didn’t waive the surviving spouse’s interest in it, and that the administrator’s fiduciary duty supported the order. The surviving spouse had agreed to pay the cost of the return. I found no published California appellate decision on the question as of October 2026.
Portability or a bypass trust
Portability is simple and keeps everything in the survivor’s hands. A bypass trust, also called a credit shelter trust, uses the first spouse’s exemption at the first death and keeps the trust out of the survivor’s estate. The trade-off shows up over time, and it’s sharper in California because of the income tax on gains.
The example is hypothetical. A California couple has $30 million of community property. One spouse dies in 2026. Under portability, everything goes to the survivor and the executor elects portability, porting a $15 million DSUE. Under the bypass plan, $15 million goes into a bypass trust and $15 million to the survivor. Assets grow 6% a year, the survivor dies 15 years later in 2041, and her own basic exclusion rises 2.5% a year from $15 million.
| Item | Portability (all to the survivor) | Bypass trust ($15M) plus survivor’s share |
|---|---|---|
| Survivor’s estate at death | $71,896,746 | $35,948,373 |
| Bypass trust at the survivor’s death (outside her estate) | None | $35,948,373 |
| Survivor’s basic exclusion in 2041 (2.5% inflation, rounded) | $21,720,000 | $21,720,000 |
| DSUE from the first spouse | $15,000,000 | $0 (exclusion used by the bypass trust) |
| Total exclusion | $36,720,000 | $21,720,000 |
| Estate tax at 40% | $14,070,698 | $5,691,349 |
| Gain with no second step-up | $0 | $20,948,373 |
| Tax on that gain if realized at 37.1% | $0 | $7,771,846 |
Assumptions: all growth is unrealized appreciation; the survivor spends nothing; estate tax is 40% of the amount over the exclusion (IRC § 2001(c)); the gain rate combines the 20% federal capital gains rate (IRC § 1(h)), the 3.8% net investment income tax (IRC § 1411), and California’s 12.3% top rate plus the 1% surcharge on income over $1 million (FTB rate schedules; Rev. & Tax. Code § 17043). The bypass trust saves $8,379,349 of estate tax here. If the children later sell the bypass trust’s assets, the lost step-up costs up to $7,771,846. If they hold the assets, it costs nothing until they sell. For blended families, a QTIP trust with a partial election splits the difference. See QTIP trusts, and note that a QTIP election on a portability return stands under Rev. Proc. 2016-49.
| Issue | Portability | Bypass trust |
|---|---|---|
| Basis at the survivor’s death | Everything the survivor owns gets a new basis (IRC § 1014) | No second step-up, so trust assets keep their first-death basis |
| Growth after the first death | DSUE frozen at the first death | All growth stays outside the survivor’s estate |
| GST exemption | Doesn’t port (IRC § 2631(c)) | First spouse’s GST exemption can be allocated to the trust (§ 2631(a)) |
| Creditors and a new spouse | Survivor owns the assets outright | A spendthrift clause protects income until paid (Prob. Code § 15300) |
| Remarriage | DSUE lost if a new spouse dies first and has none | Unaffected |
| IRS review | First spouse’s return open for DSUE purposes at the second death (IRC § 2010(c)(5)(B)) | Ordinary limitations periods |
| Paperwork | A complete Form 706 at the first death | Ongoing trust administration and trust income tax returns |
For couples well above the exemption, portability is one tool among several: a credit-shelter or QTIP marital trust (IRC § 2056(b)(7)) can do things portability can’t, like shielding future appreciation and protecting kids from a first marriage. That’s the kind of tradeoff we work through in estate-tax planning, and it’s why the old AB trust question is worth revisiting now that the exemption is so high.
What California adds to the choice
California has no estate tax, so portability is a federal election. California law still changes the math in three places.
A lost step-up costs a California family more than it costs a family in a state without an income tax, because California has no lower rate for capital gains (Franchise Tax Board). When a California spouse dies, half the community property belongs to the survivor (Prob. Code § 100), and both halves get a new basis at the first death if at least half was in the decedent’s estate (IRC § 1014(b)(6)). That’s true under either plan. The difference is the second death: property the survivor owns gets another new basis, and bypass trust property doesn’t.
A bypass trust can hold the family home without a reassessment while the survivor is alive, because a transfer to a trustee for the beneficial use of the surviving spouse isn’t a change in ownership (Rev. & Tax. Code § 63(a)). That holds for a bypass trust for the survivor’s sole benefit during her life. The Prop 19 question comes when the house goes to the children. See the Prop 19 parent-child exclusion.
If an older A/B trust requires a bypass trust at the first death, whether to fund it, disclaim into it, or use portability instead is a question for the trustee and the family. See is your AB trust obsolete?
Working with Ridley Law
The call is for California surviving spouses and executors deciding whether to file a 706 for portability, including late elections, and for couples weighing portability against a bypass or QTIP trust. The first call is free and runs 30 minutes, by phone or Zoom. I work alongside your CPA and, where the matter calls for it, co-counsel. Work at this level is built for each family and quoted in writing before any drafting starts.
Book my 30-minute call or call 805-244-5291.
Frequently asked questions
Do I have to file a 706 if my spouse dies and no tax is owed?
Only if you want to elect portability. A Form 706 isn’t otherwise required when the estate is under the $15,000,000 exemption, but filing it is the only way to preserve the deceased spouse’s unused exemption (the DSUE) for the survivor.
How long do I have to file for portability after my spouse dies?
Up to five years from the date of death, for estates not otherwise required to file a 706 (Rev. Proc. 2022-32). The normal nine-month deadline doesn’t cap a portability-only election, so a late filing within five years is allowed.
Does California have an estate tax or affect portability?
No. California has no state estate tax and no state inheritance tax. Portability is entirely a federal matter, so your California residence doesn’t add a state-level step.
Do most families need to elect portability?
No. With a $15,000,000 exemption per person, most families are fully covered by a single exemption and don’t need it. It matters mainly for combined estates near or above $15 million, growing estates, or a surviving spouse likely to remarry.
What is the DSUE?
The Deceased Spousal Unused Exclusion: the portion of the first spouse’s federal estate-tax exemption that wasn’t used at their death. Filing Form 706 and electing portability lets the surviving spouse add that unused amount to their own exemption.
Can the IRS audit my late spouse’s estate tax return when I die?
Yes, for the limited purpose of checking the DSUE. IRC § 2010(c)(5)(B) lets the IRS examine the first spouse’s return after its limitations period has run, and in Estate of Sower (2017) 149 T.C. 279 it cut a $1,256,033 DSUE to $282,690 because of lifetime gifts the first return left out. It can’t assess new tax against the first estate once that period has run.
What happens to the DSUE if I remarry?
Remarriage alone doesn’t change it. If your new spouse dies before you, that spouse becomes your last deceased spouse, and you keep only that spouse’s DSUE, if any (Treas. Reg. § 20.2010-3(a)). DSUE you’ve already used on lifetime gifts stays used, because gifts draw on the DSUE first (Treas. Reg. § 25.2505-2(b)).
Is the GST exemption portable?
No. The generation-skipping transfer tax exemption equals the basic exclusion amount (IRC § 2631(c)), which doesn’t include the DSUE. A first spouse who wants to use that exemption has to allocate it at the first death, for example to a bypass trust, or through a reverse QTIP election under IRC § 2652(a)(3).
Handling a trust or estate after a death?
A free 30-minute call with Eric Ridley. You’ll hear what has to happen, what it costs, and what you can safely do yourself. Ridley Law handles California trust administration and uncontested probate on clear, quoted fees.
Want a straight read on where you stand?
Talk to Eric. A free 30-minute call, no pitch. He’ll tell you where you’re exposed, what it would cost to fix, and what you can skip.
Talk to Eric