Estate Tax Portability in California: The 706 Most Families Skip

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 the deadline AI usually gets wrong: estates not required to file get 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 is general information, not legal advice for your situation.

What portability actually is

Every person has a federal estate-tax exemption — $15,000,000 in 2026, made permanent by the One Big Beautiful Bill Act. 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.

Here’s the mechanic that trips people up: 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.

A real example

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 $15,000,000 DSUE — $30,000,000 of shelter. 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.

The deadline: five years, not two

This is where AI answers routinely go wrong. 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. So a widow who didn’t realize any of this until three years after her husband died still has time to fix it. Don’t let anyone tell you the window closed at two years — that was the older rule, and it was extended.

California and who actually needs this

California has no state estate tax and no state inheritance tax, so portability is purely a federal question here. That narrows who needs it. Be honest with yourself about the numbers:

• Comfortably under ~$15 million combined? You probably don’t need portability at all. Your own single exemption already covers you, and filing a 706 you don’t need just costs money.
• Combined estate near or above ~$15 million? Portability deserves serious thought. Filing the 706 preserves a second exemption that could save your family millions.
• A growing estate, or a survivor likely to remarry? Consider it even if you’re a bit under today. Assets appreciate, and remarriage complicates the picture — capturing the DSUE now is cheap insurance.

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.

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.

The bottom line

Portability is a real tool with a narrow audience. If your combined estate is comfortably under $15 million, you can almost certainly skip it. If you’re near or above that line — or your estate is climbing, or a surviving spouse may remarry — filing a Form 706 to preserve the DSUE can save your family millions, and you have up to five years to do it. The 706 itself is prepared with a CPA, and we’ll coordinate with yours. But whether portability, a marital trust, or nothing at all fits your family is exactly the kind of question worth a straight answer — and it’s the same analysis behind planning for larger estates. Talk to Eric.

Sources: IRC § 2010(c) (applicable exclusion and portability of DSUE); Rev. Proc. 2022-32 (simplified method, up to 5 years, for late portability elections by estates not required to file); IRC § 2056(a) (unlimited marital deduction) and § 2056(b)(7) (QTIP marital trust); IRS Form 706; P.L. 119-21 § 70106 (2026 exemption $15,000,000/person, permanent). California has no state estate or inheritance tax.