The Estate Tax Move Surviving Spouses Miss: Claiming a Late Spouse’s Unused Exemption

The IRS announced a bigger estate and gift tax exemption for 2027 on Thursday. Estates of people who die during 2027 get a basic exclusion amount of $15,480,000, up from $15,000,000 for estates of decedents who died in 2026. For married couples, a second question can matter more than the headline number: did the first spouse’s executor lock in the exemption that spouse never used? That transfer is called portability. It lives in 26 U.S.C. § 2010(c), and it only exists if someone files a return that often shows no tax due.

What a Surviving Spouse Can Actually Claim

Under 26 U.S.C. § 2010(c)(2)(B), a surviving spouse’s applicable exclusion amount is the basic exclusion amount plus the deceased spousal unused exclusion amount, known as DSUE. Section 2010(c)(4) defines DSUE as the lesser of the basic exclusion amount or the late spouse’s applicable exclusion amount minus the amount the estate tax was computed on. Treasury regulations at 26 CFR 20.2010-2(c)(1) spell out that this base is the taxable estate plus adjusted taxable gifts, and that the cap is the basic exclusion amount in effect in the year the first spouse died.

The survivor gets the leftover, not a second full exemption. Taxable lifetime gifts and bequests to children both shrink it.

The date of death decides which figure applies. The One, Big, Beautiful Bill set the basic exclusion at $15,000,000 under § 2010(c)(3)(A), and the IRS confirmed that amount for decedents who die during 2026, up from $13,990,000 for 2025 deaths. Inflation indexing applies to decedents dying in a calendar year after 2026. If a spouse died in 2025, that spouse’s DSUE is capped at the 2025 figure.

No Tax Owed Still Means a Return Is Due

Under § 2010(c)(5)(A), the survivor can’t use the DSUE unless the late spouse’s executor files an estate tax return that computes it and makes the election. Once made, the election is irrevocable. A return filed after the deadline can’t make the election. The regulations set the due date at nine months after the decedent’s date of death or the last day of an extension.

Filing a return and owing tax are separate events. Of the 7,195 estate tax returns filed in 2024, 4,532 were nontaxable and reported $0 in net estate tax.

Late-Election Relief Comes With a Five-Year Clock

Under Rev. Proc. 2022-32, the IRS offers a simplified way to get more time to make the election, with no user fee and no letter ruling. It applies only to estates that weren’t otherwise required to file under § 6018(a), measured by the gross estate and adjusted taxable gifts. The deadline is on or before the fifth anniversary of the decedent’s date of death. Estates that were required to file get no such relief: the regulations bar an extension under § 301.9100-3 for them, per 26 CFR 20.2010-2(a)(1).

Worked Example: A Business Owner’s Estate

A hypothetical business owner dies in 2026, when the basic exclusion is $15,000,000. Most assets pass to the spouse tax-free under the marital deduction. Bequests to children plus adjusted taxable gifts total $6,000,000. The DSUE is the lesser of $15,000,000 or $15,000,000 minus $6,000,000, which comes to $9,000,000. The executor files a timely Form 706 and makes the election.

The surviving spouse dies in 2027, never remarried and made no taxable gifts. That spouse’s applicable exclusion is the 2027 basic amount of $15,480,000 plus the $9,000,000 DSUE, for a total of $24,480,000. The survivor’s own exclusion rises with inflation. The transferred amount remains fixed at what was calculated at the first death.

Remarriage Can Wipe Out the Credit

DSUE comes only from the last deceased spouse as of the date the survivor dies. If that last spouse had no DSUE, or the executor never elected, the survivor’s estate has no DSUE even if one was available from an earlier spouse. Remarrying doesn’t change who the last deceased spouse is, and neither does a later divorce, per 26 CFR 20.2010-3(a)(3). If a new spouse dies first, though, the earlier credit can be lost. The regulations carve out a special rule for DSUE the survivor has already used on lifetime gifts.

Why Large Estates Still Use Bypass Trusts

A bypass (credit shelter) trust funded at the first death moves that growth out of the survivor’s estate. Portability fixes the dollar amount. For high-growth families, that difference adds up. Fed data shows net worth for the top 0.1% of households rose 18.9% year over year in the second quarter of 2026. Other points favor a trust:

• A trust is unaffected by remarriage.
• Portability covers the federal estate and gift taxes. The generation-skipping transfer exemption is a separate allowance.
• Under § 2010(c)(5)(B), the IRS can examine the first spouse’s return to check the DSUE even after the normal limitations period has run. That means records and valuations have to hold up for decades.

Decision Framework Before the Nine-Month Deadline

• Combined estate near or above one exemption: An election costs one return and keeps options open if values rise.
• Simplicity valued over growth: Outright marital bequests plus portability skip trust administration.
• Weaker fit: Families holding fast-appreciating closely held stock or private businesses, survivors likely to remarry, and families focused on generation-skipping goals.
• Missed deadline: Check whether the estate was required to file and whether the five-year window is still open.

Going forward, the $15,480,000 figure governs deaths in 2027, and the $15,000,000 figure governs deaths in 2026. Portability is only one line on a much longer checklist of beneficiary forms, ownership, and trust paperwork that decides whether money reaches family or lawyers (we put the full cleanup list in a free estate checklist). Election-year politics could reopen the subject: one recent report looked at how finances could change if Democrats repeat their win in 2028. Until Congress acts, the five-year clock and the last-deceased-spouse rule decide whether the unused exemption carries over.

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