Skip Form 706 After a Spouse Dies With $4 Million and the Estate Will Lose a $15 Million Exemption It Can Never Get Back.
When a surgeon dies leaving his entire estate to his wife, the family assumes no tax return means no problem. But a single unfiled form can quietly erase millions in exemptions, and most families never discover the mistake until it…
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A 72-year-old retired surgeon dies in 2026 with $4 million in his name: a brokerage account, his half of the house, and a paid-up life insurance policy. His will leaves everything to his wife. The estate owes no federal tax, so the family’s lawyer retitles the accounts, records the deed, and closes the file.
Nobody files Form 706, because nobody owes anything on it. The deadline passes quietly.
Years later the widow dies with an estate of $25 million. Her children learn that their father’s entire federal exemption vanished with the return nobody filed. The bill comes to $4,000,000.
Portability Only Works If the Executor Claims It
Every estate can shelter a basic exclusion amount, which is $15,000,000 for estates of people who die in 2026, up from $13,990,000 for 2025 deaths. A surviving spouse’s exclusion equals her own basic exclusion plus the “deceased spousal unused exclusion amount“, known as DSUE, under 26 U.S.C. § 2010(c)(2).
The trap sits in § 2010(c)(5)(A). The survivor gets DSUE only if the executor “files an estate tax return on which such amount is computed and makes an election on such return”. In short, portability of the deceased spouse’s unused exemption must be elected. Once made, the election “shall be irrevocable,” and the law bars any election on a return filed after the deadline, extensions included.
That deadline is 9 months after the date of the decedent’s death under § 6075(a). A $4 million estate falls far below the filing threshold, so no return is required. That gap is exactly why families skip it.
How $4 Million Leaves $15 Million Unused
Property passing to a surviving spouse qualifies for the marital deduction, and generally, there is no limit on the amount of the marital deduction. Because all $4 million goes to his wife, his taxable estate drops to zero.
Section 2010(c)(4) sets DSUE at the lesser of the basic exclusion or the portion of his exclusion his estate left unused. With nothing taxable, he used none of it. His DSUE equals the full $15,000,000, and every dollar of it is portable. Skip the return and every dollar disappears.
Running the Widow’s Tax Bill Shows the Damage
Assume she dies with $25 million, including what she inherited and what it earned since. For a clean comparison, hold her own exclusion at the 2026 figure. Her basic exclusion adjusts for inflation for deaths after 2026, while his DSUE stays fixed at the amount computed on his return.
Without portability: her estate exceeds her $15,000,000 exclusion, and the excess is taxed at the 40% top rate in § 2001(c). The federal estate tax comes to $4,000,000.
With portability: her applicable exclusion becomes her own $15,000,000 plus his $15,000,000, a combined $30,000,000. A $25 million estate fits below it. Federal estate tax: zero.
One unfiled return election could costs the children $4,000,000.
Late Filing Still Works, Until the Fifth Anniversary
The IRS offers a grace period. Revenue Procedure 2022-32 extends the portability election period to on or before the fifth anniversary of the decedent’s date of death for estates that were not otherwise required to file. Estates that miss that window must seek relief from the IRS directly, according to the Instructions for Form 706, a slower and costlier path with no guaranteed result.
Past five years, the simplified route closes, and the exemption is effectively gone for good.
Five Moves That Lock In the Exemption
- Calendar the nine-month date on the day of death. If the paperwork runs long, file Form 4768 to extend the deadline before it passes.
- File a complete Form 706 even when no tax is due. Confirm the executor calculates the DSUE and makes the portability election on the return.
- Check every death in the last five years. If a spouse died and no return went in, file now under Rev. Proc. 2022-32 before the fifth anniversary.
- Keep the appraisals and the filed return permanently. Under § 2010(c)(5)(B), the IRS may examine a return of the deceased spouse to verify DSUE even after the normal assessment period runs out.
- Talk about remarriage before it happens. DSUE comes from the “last such deceased spouse”, so a new spouse who dies first replaces the old amount.
An estate tax attorney or CPA can confirm the right valuation approach for your own return. The filing decision belongs to the executor and has to happen within months (we put the full estate settlement checklist, beneficiary forms and titling included, in a free guide here).
One Number to Remember
A spouse who dies in 2026 and leaves everything to the survivor can pass along $15,000,000 of exemption, but only through a Form 706 filed within five years. On a $25 million second estate, skipping that return costs $4,000,000.
Contact [email protected] for any questions or corrections.
Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
