In July, we reported that the One Big Beautiful Bill Act (OBBBA), enacted earlier this year, includes a permanent and expanded increase to the federal unified lifetime gift and estate tax exemption. This exemption represents the amount an individual may give away during their lifetime or pass on at death – or a combination of the two – without incurring federal gift or estate taxes. As a result of the OBBBA, starting Jan. 1, 2026, the exemption will rise from the current $13,990,000 per person to $15,000,000 per person.
Without this new law, the exemption would have been cut in half (to about $7.5 million per person). This increase gives married couples – even those with significant assets – a chance to simplify older estate plans that relied on complicated structures designed to avoid estate taxes. A key to that simplification is known as “portability.”
What is portability?
“Portability” refers to a federal tax rule that allows a surviving spouse to “inherit” the unused portion of their deceased spouse’s estate tax exemption. This means the surviving spouse can apply both their own exemption and the unused amount from their deceased spouse, effectively doubling the amount they can pass on gift and estate tax-free. To take advantage of portability, however, a federal estate tax return must be filed, even if one is not otherwise required.
How we got here
Before 2011, using a deceased spouse’s estate tax exemption required setting up a special kind of irrevocable trust – often called a Bypass Trust, B Trust or Credit Shelter Trust – at the first spouse’s death. When portability was introduced in 2011, this extra step became unnecessary for many families. At that time, the estate tax exemption was $5 million per person, so portability allowed married couples with up to $10 million in combined assets to simplify their plans and avoid the complications of an irrevocable trust. Now, with the exemption permanently increased to $15 million per person (and indexed for inflation starting in 2027), even very wealthy couple can use portability as a simpler planning tool. Beginning in 2026, a married couple can pass up to $30 million to heirs or other beneficiaries without paying federal estate taxes – simply by electing portability.
Here are examples of when an irrevocable trust is still beneficial:
• Generation-Skipping Transfer (GST) Tax: The GST exemption cannot be ported by a surviving spouse. If it’s not used in an irrevocable trust after the first spouse’s death, it’s lost.
• Creditor Protection: Assets left outright to a surviving spouse can be vulnerable to creditors, whereas assets held in an irrevocable trust generally enjoy stronger protection.
• Appreciation: The amount of exemption transferred through portability is frozen at the level in effect when the first spouse dies. If the surviving spouse’s estate grows faster than the exemption, estate tax may be due on the survivor’s death. By comparison, if the assets of a deceased spouse are held in an irrevocable trust, those assets and all appreciation on those assets will be shielded from estate tax on the survivor’s death.
• Remarriage: If a surviving spouse remarries and outlives their new spouse, they lose the first spouse’s ported exemption. If the first spouse’s exemption were instead held in an irrevocable trust, no such forfeiture would occur.
• Control: Without the irrevocable trust, the surviving spouse controls all inherited assets and could alter the estate plan, potentially disinheriting the deceased spouse’s biological children in favor of the surviving spouse’s children or new spouse. The irrevocable trust ensures the deceased spouse’s wishes are preserved.
• Non-Citizen Spouses: Portability is not available if the surviving spouse is neither a U.S. resident nor a U.S. citizen. In that case, an irrevocable trust is the only way to utilize the deceased spouse’s exemption. Even in cases where one spouse is a non-citizen resident and portability is available, complex trust structures using irrevocable trusts are often needed to fully avoid estate tax.
A final word
There’s no one-size-fits-all solution in estate planning. Every family’s goals, values and financial picture are unique. However, with the new higher exemption, even those with sizable estates may benefit from revisiting older, more complex plans. If you were previously advised that your estate was “too large” for a simpler plan, it may be worth another conversation with your financial or legal advisors. Portability is no longer a tool reserved for modest estates (by Bay Area standards) – it’s now a practical option for many more families in our community.
Jean M. Kohler, Esq. and Victoria Kaempf, Esq. are attorneys-at-law with the Kohler Legacy Law Group, PC, in Los Altos. For more information, call (650) 475-0209 or visit kohlerlegacylaw.com.
