Here’s a nightmare scenario that haunts estate attorneys: A little piece of paperwork that gets skipped because it doesn’t seem like a big deal at the time could cost your family millions in taxes. We’re discussing actual money, not some theoretical figure in a textbook. It is also way more common than you would think. Let me tell you what I mean.
When one spouse passes away, there’s this portability estate tax thing that gives the surviving spouse any unused portion of the deceased spouse’s federal estate tax exemption. It is basically a “use it or don’t lose it” offer. But it doesn’t just happen on its own. You have to file for it. And if you don’t? Well, that unused exemption just vanishes into thin air.
What’s Actually at Stake Here
As it currently stands, the federal estate tax exemption 2025 is $13.99 million per person. That means a married couple can shield up to $27.98 million from federal estate taxes, as long as they play their cards right. By January 2026, that number will rise to $15 million per person under new legislation that has enshrined these higher exemptions as permanent. That seems like a lot of money, right? And for most folks, it is. But here’s where people get tripped up: even if you don’t believe you need to file an estate tax return because the value of the estate is well under that threshold, you arguably may want to file one anyway.
Let me explain why. So, for example, let’s say that someone’s husband dies and he has about $4 million worth of stuff. There is no estate tax due, and so the executor reasons there is no reason to file Form 706. Fast-forward another few years, and that someone also drops dead with an estate worth, say, $16 million. Guess what? Because no one filed to save the husband’s unused exemption, the family just got hit with a massive tax bill. That one sheet of unfiled paper could end up costing the heirs millions in taxes that were entirely avoidable.
The Filing Trap Nobody Talks About
Here’s where the estate tax mistake that can cost families millions really shows up. Most executors don’t realize they need to file an estate tax return when no tax is owed. It seems counterintuitive. Why file if there’s nothing to pay? But that’s exactly when you need to make what’s called a portability election. And there’s a time limit on this. Generally, you’ve got to file Form 706 within nine months of death, though you can get a six-month extension.
Miss that window, and you might be stuck. There is some relief available—Revenue Procedure 2022-32 gives you up to five years after death to file for portability if you meet certain conditions—but why cut it close? The Tax Court just hammered this point home in a 2025 case. An estate tried to claim portability, but the original return wasn’t filed properly. The court said no dice. The surviving spouse’s estate lost millions because the first spouse’s return didn’t have all the necessary details and valuations. Talk about an expensive oversight.
When It Gets Really Complicated
Now, things get trickier if the surviving spouse remarries. This is where people really get tripped up. Let’s say Susan’s first husband, Bob, dies in 2020, leaving $5 million in unused exemption. She files for portability and preserves that amount. Then she marries Phil, who dies in 2025 with only $2 million in unused exemption. Here’s the twist: even if Susan doesn’t file a new estate tax return for Phil, she automatically loses access to Bob’s larger exemption.
The IRS says you can only use the exemption from your most recently deceased spouse. Phil is now her most recently deceased spouse, so Bob’s $5 million goes poof. She’s left with Phil’s $2 million, even though she never made a new portability election. That’s a $3 million difference that just disappeared because of a technicality most people have never heard of.
State Taxes Make It Even Messier
Here’s another wrench in the works: portability only applies at the federal level. If you live in a state like New York, which has its own estate tax, you’re playing by different rules. New York’s exemption for 2025 is just $7.16 million, and they don’t allow portability at all. So even if you preserve your spouse’s federal exemption, it doesn’t help you one bit with New York State taxes. And New York has what estate planners call the “tax cliff”. If your estate goes over 105% of the exemption, which is just $358,000 over in 2025, you lose the entire exemption. Your whole estate becomes taxable from dollar one. It’s brutal.
What You Should Actually Do
Look, nobody wants to think about this stuff when they’re grieving. But here’s the bottom line: if you’re the executor of an estate where the deceased was married, you need to seriously consider filing Form 706 even if no tax is owed. The cost of filing that return is nothing compared to the millions your family could lose down the road. And if your spouse died in the last few years and you never filed for portability, don’t panic.
You might still be able to do it under the five-year rule. But you need to get on it now. This isn’t the kind of thing you want to DIY, either. The forms are complicated, and as that 2025 Tax Court case showed, getting it wrong can cost big time. Find an estate planning attorney or tax professional who knows their way around these rules.
The Bottom Line
The estate tax mistake that can cost families millions isn’t some fancy tax dodge gone wrong. It’s simply not filing a form that preserves your exemption. That’s it. A piece of paperwork that could save your family millions in taxes, but only if someone actually files it. The exemptions are higher now, and they’re staying that way through 2026 and beyond. But that doesn’t mean you can ignore portability.
If anything, it makes preserving these exemptions even more valuable. We’re talking about protecting $15 million per person or $30 million for couples starting next year. That’s serious money. Don’t be the family that loses millions because nobody filed the right form at the right time. Talk to your estate planner now. Make sure your spouse’s exemption doesn’t just evaporate when you could have saved it with one simple filing. Trust me, your heirs will thank you for it.
