When a spouse dies, the surviving spouse can inherit any amount of property free of federal estate tax under the unlimited marital deduction, and the deceased spouse’s own $15 million exemption can be preserved for later use by the survivor. That preservation, called portability, is what protects the estate tax exemption when a spouse dies, but it only happens if the executor files a federal estate tax return and formally elects it. Miss that filing, and the exemption is gone.
The Exemption Amount in 2026
Every person can pass a set amount of wealth free of federal estate tax. For deaths in 2026, that amount is $15 million per person.1Internal Revenue Service. What’s New — Estate and Gift Tax A married couple has a combined $30 million available in theory, but capturing the full amount depends on the steps taken after the first death.
The One, Big, Beautiful Bill, signed on July 4, 2025, made the $15 million exclusion permanent and indexed it for inflation starting in 2027.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One, Big, Beautiful Bill Anything above the exemption is taxed at a top rate of 40%.3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
Why Nothing Is Usually Owed at the First Death
The unlimited marital deduction lets one spouse transfer any amount of property to the other at death with zero federal estate tax, provided the surviving spouse is a U.S. citizen.4Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse There is no ceiling. A $5 million estate and a $50 million estate get the same treatment.
The deduction defers tax rather than eliminating it. Assets inherited from the first spouse join the survivor’s estate and can be taxed when the survivor dies, unless they are spent, given away, or fit within the survivor’s exemption. For most couples the deferral works out to permanent avoidance, because whatever remains sits comfortably under the exclusion at the second death.
Here is the tension this creates. If someone with a $20 million estate dies in 2026 and leaves everything to their U.S. citizen spouse, the entire $20 million passes tax-free, but the deceased spouse’s own $15 million exemption goes unused at that moment. Without a further step, it would disappear.
How the Exemption Carries Over Through Portability
Portability is the mechanism that keeps the first spouse’s exemption from vanishing. It lets the executor transfer the unused portion, called the Deceased Spousal Unused Exclusion (DSUE), to the surviving spouse, who then adds it to their own exemption.5Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
If the first spouse dies in 2026 and used none of the exemption, the survivor stacks the full $15 million DSUE on their own $15 million, shielding up to $30 million from the 40% tax. If the first spouse used part of the exemption, only the remainder carries over. A first-to-die spouse who leaves $6 million to someone other than the survivor consumes $6 million of exemption; the remaining $9 million of DSUE passes to the survivor, giving them $24 million of total coverage.6Internal Revenue Service. Frequently Asked Questions on Estate Taxes
The Filing That Preserves the Exemption
Portability is never automatic. The executor of the deceased spouse’s estate must actively elect it by filing IRS Form 706, the federal estate tax return, even when the estate is nowhere near the $15 million threshold and owes no tax.6Internal Revenue Service. Frequently Asked Questions on Estate Taxes Skip the return, and the first spouse’s exemption is lost.
The surviving spouse can act as executor for this filing if no one else has been formally appointed. The deadline is nine months after the date of death, with an automatic six-month extension available by filing Form 4768.5Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Because Form 706 requires a full accounting of the deceased spouse’s assets at fair market value, most families work with an estate attorney or CPA to prepare it.7Internal Revenue Service. Instructions for Form 706
If You Missed the Deadline
A missed deadline is not always fatal. Revenue Procedure 2022-32 offers a simplified late-election route for estates that were not otherwise required to file Form 706 (in other words, estates below the filing threshold). The executor must file a complete Form 706 within five years of the date of death and write “FILED PURSUANT TO REV. PROC. 2022-32” at the top of the return.8Internal Revenue Service. Revenue Procedure 2022-32 Estates that miss the five-year window, or that were required to file in the first place, can seek relief through a private letter ruling from the IRS, but the process is slower and more expensive.
What Portability Does Not Cover
Generation-Skipping Transfers
Each person also has a separate exemption from the generation-skipping transfer (GST) tax, which applies to assets passed directly to grandchildren or others two or more generations below. This exemption is not portable.9Internal Revenue Service. Instructions for Form 706-GS(T) When the first spouse dies without using their GST exemption, it disappears. Families thinking about gifts to grandchildren often fund a bypass trust at the first death to lock in both exemptions rather than relying on portability alone.
Remarriage and the Last Deceased Spouse Rule
If the surviving spouse remarries and the new spouse later dies, the DSUE resets to whatever the most recent deceased spouse left unused. Any DSUE inherited from the first spouse is no longer available after the second spouse dies.7Internal Revenue Service. Instructions for Form 706 A surviving spouse who inherited a large DSUE from a first marriage can lose it if the second spouse dies with a smaller unused exemption.
There is a partial workaround. The surviving spouse can use the first spouse’s DSUE to make taxable gifts before the second spouse dies. Once consumed by lifetime gifts, the DSUE cannot be clawed back by the last-deceased-spouse rule. Timing matters, and this kind of planning calls for professional guidance.
If the Surviving Spouse Is Not a U.S. Citizen
The unlimited marital deduction is not available when the surviving spouse is not a U.S. citizen. Assets can instead be routed through a Qualified Domestic Trust (QDOT), which must have at least one U.S. citizen or domestic corporate trustee with authority to withhold estate tax on principal distributions.10Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust QDOTs holding more than $2 million face additional requirements, such as using a bank trustee or posting a bond equal to 65% of the trust’s value.11eCFR. Requirements for Qualified Domestic Trust Couples in this situation should plan well before the first death; the rules at death are far more restrictive than for citizen spouses.
The Other Tax Benefit at Death: Step-Up in Basis
The estate tax exemption is not the only tax break triggered by a spouse’s death. Inherited property receives a new tax basis equal to its fair market value on the date of death rather than what the deceased spouse originally paid.12Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired from a Decedent Stock bought for $50,000 and worth $500,000 at death passes to the surviving spouse with a $500,000 basis, meaning an immediate sale triggers no capital gains tax.
How much of a jointly owned asset gets stepped up depends on state law. In common-law states, only the deceased spouse’s half receives the step-up, and the survivor’s half keeps its original basis. In community property states, both halves of community property get a full step-up when one spouse dies, which can wipe out large embedded gains on real estate and long-held investments. The step-up applies whether or not the estate owes tax, so long as the asset is included in the decedent’s gross estate.
State Estate Taxes Are a Separate Question
Federal rules are only part of the picture. About a dozen states and the District of Columbia impose their own estate taxes, with exemption thresholds ranging from as low as $1 million to roughly $13.6 million. A family that owes nothing to the IRS can still face a substantial state estate tax bill.
State portability rules also differ. Some states with an estate tax do not recognize federal portability, so the surviving spouse cannot carry over the deceased spouse’s state-level exemption even after filing Form 706. If you live in, or own property in, a state with its own estate tax, coordinate state-level planning with the federal filing at the first death.