Say This Word After Your Spouse Dies: Portability and Estate Planning for Indian American Families in Texas

I often hear some version of this question from clients: “I’m getting older. I’m planning my estate. Do I really need to worry about estate taxes?”

For many couples, a high federal estate tax exemption makes the answer feel obvious. Their assets are comfortably below the limit, so estate tax planning seems like someone else’s problem.

But not owing estate tax today is different from having nothing to plan for. Your assets can grow. The law can change. And an important benefit available after the first spouse dies does not automatically carry over to the surviving spouse.

The word to bring up with your attorney is portability. Saying it is only the beginning. Preserving the benefit requires the right filing.

Why a High Estate Tax Exemption Is Not the End of the Conversation

The federal estate tax exemption protects a certain amount of wealth from federal estate tax. When that exemption is high, many families will not face an immediate estate tax bill.

That is reassuring, especially in Texas, which does not have a separate state estate tax. Other states, including New York and Washington, do have state estate taxes.

Still, the federal exemption is set by law. It is not a permanent promise about what your family will be allowed to pass on decades from now. A future government could lower it to raise revenue, potentially bringing more families into the estate tax system.

When you prepare a will or trust in Texas, the question should not stop at, “Are we below the exemption now?” It should also include:

• What happens if the exemption falls?

• What happens if our assets grow substantially?

• What happens if one spouse lives another 20 or 25 years?

• How will we preserve any unused exemption after the first death?

To make the issue concrete, the example below uses an assumed exemption of $15 million per person at the first death and $10 million at the second death. These are illustrative assumptions, not a statement of the exemption applicable in any particular year. The actual amount must be checked for the relevant date.

Meet Raj and Priya: An 8 Million Dollar Houston Estate

Suppose Raj and Priya are an Indian-American couple living in Houston. They have two grown children and have built a comfortable financial life.

Their assets include:

• Their home

• 401(k)s and IRAs

• Bank accounts

• Brokerage accounts

• Life insurance

For this simplified example, assume the assets counted in their estate total $8 million. Also assume those assets are community property, with half belonging to Raj and half to Priya.

Raj dies unexpectedly. His half of the estate is approximately $4 million, well below the assumed $15 million individual exemption.

Priya lives another 25 years. She does not remarry, remains in Houston, and leaves most of the money invested. Over that time, the assets grow substantially. For the comparison, assume her estate is worth $25 million when she dies.

Now consider two different outcomes, depending on what happened after Raj’s death.

Scenario One: No Tax Is Due, So Nobody Files a Return

After Raj dies, Priya meets with the family’s attorney to settle his estate.

The attorney explains that there is no federal estate tax due. Raj’s $4 million share is nowhere near the assumed $15 million exemption. In this simplified situation, the estate is also below the threshold that would otherwise require a federal estate tax return.

Priya is relieved. The accounts are updated, the necessary estate paperwork is handled, and no federal estate tax return is filed.

Nothing about that decision feels urgent at the time. There is no tax bill. Why file a tax return when you do not have to?

The problem becomes clear 25 years later.

The Children Face a Very Different Calculation

When Priya dies, her estate is worth $25 million. Assume the federal exemption has fallen to $10 million.

Her children now face this simplified calculation:

• Estate value:

  $25 million

• Available exemption:

  $10 million

• Amount above the exemption:

  $15 million

• Illustrative tax at 40%:

  $6 million

Federal estate tax is generally due nine months after death. A multimillion-dollar bill on that timetable is a very different conversation from the reassuring meeting Priya had after Raj died.

One of the children might reasonably ask: “Dad had a $15 million exemption. Mom had a $10 million exemption. Why don’t we have $25 million of protection?”

Because the first spouse’s unused exemption does not automatically transfer to the surviving spouse.

What Is Estate Tax Portability?

Portability allows a surviving spouse to use a deceased spouse’s unused federal estate tax exclusion, provided the required election is properly made.

The technical term is the deceased spousal unused exclusion amount, commonly shortened to DSUE. Portability is the mechanism that allows that unused amount to carry over.

Think about the paperwork involved after a death. A car title may need to be changed. Financial accounts may need to be transferred. Someone has to take the appropriate steps.

The unused estate tax exclusion also requires action. It does not simply appear in the surviving spouse’s records because the couple was married.

That is why “no estate tax due” should not end the discussion. The next question is whether a return should be filed to preserve portability.

Scenario Two: The Family Preserves Raj’s Unused Exclusion

Now return to the meeting after Raj’s death.

This time, the family discusses portability. The executor files a properly prepared federal estate tax return, Form 706, and makes the portability election, even though no estate tax is due.

For this illustration, assume Raj’s entire $15 million exclusion remains unused and available to transfer. That assumption matters: portability preserves the unused amount, not necessarily every dollar of the original exemption. Prior taxable gifts and the way assets pass at death can affect that calculation.

When Priya later dies, the simplified comparison becomes:

• Priya’s own assumed exemption:

  $10 million

• Raj’s preserved unused exclusion:

  $15 million

• Total available protection:

  $25 million

• Priya’s estate:

  $25 million

Under those assumptions, the estate would be covered by the combined available exclusion, rather than leaving $15 million exposed to federal estate tax.

The assets did not change between the two scenarios. The family did not need to predict exactly what the law would look like 25 years later. The difference was preserving an available benefit after the first death.

Why File Form 706 When You Do Not Owe Tax?

This is the part that can feel counterintuitive.

You may be considering a voluntary tax return in a year when no tax is owed, to preserve a benefit your spouse might not need for decades. Perhaps the estate will never grow enough for portability to matter. Perhaps the exemption will remain high.

But perhaps neither of those things will be true.

A filing requirement and a planning opportunity are not the same thing. An estate may not otherwise be required to file Form 706, yet filing it to elect portability may still be valuable.

The standard Form 706 filing deadline is generally nine months after death, with a six-month filing extension available when properly requested. Treat that as an early estate-administration issue, not something to revisit years later. If a deadline has already been missed, get advice about the options rather than assuming the answer.

Portability Is Useful, but It Has Limits

I consider portability one of the simplest estate tax planning tools to discuss. That does not mean it is the best or only tool for every family.

Remarriage Can Complicate the Planning

Portability involves rules concerning the surviving spouse’s last deceased spouse. A later marriage and a subsequent spouse’s death can affect which unused exclusion is available.

The important distinction is that remarriage alone does not automatically erase the first spouse’s DSUE. Still, a second marriage is a reason to review the plan rather than assume the original portability strategy will work unchanged.

Portability Does Not Separately Shelter Future Growth

Preserving an unused exclusion does not move future appreciation outside the surviving spouse’s estate. If the assets grow rapidly, that growth can create exposure beyond the available exclusion.

That is one reason portability should be considered alongside the broader estate plan, not treated as a complete substitute for it.

Other Planning Tools May Be Appropriate

Depending on the family’s circumstances, the discussion may also include disclaimer planning, qualified terminable interest property trusts, commonly called QTIP trusts, and Clayton QTIP arrangements.

Those approaches require a separate, more detailed analysis. The point is not that every couple needs a complicated trust structure. It is that every couple should understand what their plan does if the exemption drops or their wealth grows.

The Question to Ask After the First Spouse Dies

Whether you are creating a will, setting up a trust, or settling a spouse’s estate, do not rely only on today’s asset value and today’s exemption.

Ask your attorney: “Should we file Form 706 to elect portability and preserve my spouse’s unused exclusion?”

That question does not commit you to a particular strategy. It makes sure an important planning decision is considered while there is still time to act.

You may not have an estate tax problem today. Good estate planning also considers the problem your spouse or children could face decades from now.

This article is for general informational purposes only and does not constitute legal advice. The examples are simplified, and the applicable law, exemption amounts, filing requirements, and family circumstances must be reviewed individually.