Houston Estate Planning and Elder Law Attorney Blog
If you are married, federal estate tax “portability” lets the survivor use any unused estate tax exemption from the first spouse to die. That carryover—called the deceased spouse’s unused exclusion (DSUE)—can be worth millions of dollars in tax savings for your family. The catch is simple but strict: you must file a timely estate tax return for the first spouse, even when no tax is due. With a little planning, you can secure the DSUE and keep options open for wealth transfers, business exits, and home sales down the road.
Understand What Portability Really Gives You
Each spouse has a federal estate and gift tax exemption. When the first spouse dies, any unused exemption can be “ported” to the survivor. The survivor adds that DSUE to their own exemption, increasing the amount they can transfer during life or at death without federal estate tax. Portability pairs well with Houston families whose wealth sits in homes, retirement accounts, closely held companies, or life insurance trusts that may grow over time.
File the Return—Even If You Think You Do Not Need It
The biggest mistake is skipping the Form 706 because “we are nowhere near the tax limit.” Markets rise, businesses sell, and laws change. Filing within the deadline preserves the DSUE permanently. If you miss it, relief may be possible, but it is not guaranteed and it costs time and money. Treat the return like an insurance policy on future tax flexibility.
Get Organized in the First 60–90 Days
After the first spouse’s death, collect statements for bank and brokerage accounts, retirement balances, life insurance values, real estate appraisals, and any business interests. Note debts, funeral expenses, and administration costs. Store everything in a simple spreadsheet with supporting PDFs. Good documentation makes the return straightforward and avoids IRS questions later.
Choose Valuations That Withstand Scrutiny
Even when no tax is due, the return sets the estate’s basis for capital-gains purposes and locks in the DSUE figure. Obtain credible appraisals for real property and business interests and keep broker statements for marketable securities pegged to the date of death. Clean valuations reduce audit risk and help your CPA when selling assets years later.
Coordinate With Trusts, Beneficiary Forms, and Community Property
Houston couples often use revocable trusts and beneficiary designations to pass assets outside probate. Portability still applies; the DSUE is based on the gross estate and allowable deductions, not just probate assets. Because Texas is a community-property state, each spouse typically owns half of community assets. Confirm titling and gather records so the return correctly reflects separate and community portions. Accurate ownership reporting supports both the DSUE and the stepped-up basis your heirs will rely on.
Decide Whether to Use Credit-Shelter Trusts Too
Portability is powerful, but it is not a replacement for every trust strategy. A credit-shelter (bypass) trust can protect growth from estate tax in the survivor’s estate and may add creditor or remarriage protection. Many Houston plans blend the two approaches: file for portability and fund a modest bypass trust for non-tax reasons. That way, you keep tax flexibility and practical safeguards.
Track Gifts and Adjust Your Plan Over Time
Once the DSUE is on record, your advisor can help you use it. You might make lifetime gifts to children, fund a spousal lifetime access trust, or shift interests in a closely held company while values are favorable. Keep a running tally of gifts so you do not accidentally exceed your combined exemption. Revisit the plan after major events—business liquidity, home sales, or market surges.
Mind Deadlines and Extensions
Generally, the estate tax return is due nine months after death, with a six-month extension available if you file the extension on time. Put these dates on your calendar early. Even if you plan to extend, start valuation work now; appraisers and CPAs book up quickly. A timely, accurate filing turns portability from an abstract idea into a bankable tax benefit.
Communicate With Family and Co-Fiduciaries
If a child serves as executor for a surviving parent, make sure everyone understands the value of the DSUE and the need to file the return. Share a checklist—documents, appraisals, deadlines, and signatures—so the group can gather what the CPA needs. Clear roles prevent dropped balls during a difficult time.
Keep Proof for the Long Run
Store the stamped copy of Form 706, appraisals, and IRS confirmation in both paper and digital form. Years from now, when you plan large gifts or your estate files a final return, that packet will save hours and avoid disputes about the numbers.
Lock in an extra layer of estate tax protection while the window is open. To coordinate valuations, prepare a clean return, and preserve portability for your family, contact McCulloch & Miller, PLLC at (713) 936-9073 and put a Houston-smart DSUE plan in place.