One Missed Form Can Cost a Blended Family $5.2M: The QTIP Portability Election
We ran $8,000,000 funding a QTIP trust, with $2,000,000 of the first spouse’s exemption already used elsewhere, against $10,000,000 of the surviving spouse’s own assets, growing at 6% for 15 years, through the calculator: with portability elected, the survivor’s effective exemption reaches $28,000,000 (their own $15,000,000 plus $13,000,000 of the first spouse’s unused exemption), leaving $6,055,219 in estate tax owed at the second death. Without electing portability, the survivor’s exemption is just their own $15,000,000, and the tax bill jumps to $11,255,219 — a $5,200,000 difference, entirely a function of one form being filed or not.
Deferred, not eliminated
| With portability elected | Without portability elected | |
|---|---|---|
| Survivor’s effective exemption | $28,000,000 | $15,000,000 |
| Combined taxable estate at 2nd death | $43,138,047 | $43,138,047 |
| Estate tax owed | $6,055,219 | $11,255,219 |
| Difference | $5,200,000 |
The QTIP structure itself worked exactly as designed at the first death — no tax was owed, and the surviving spouse got lifetime income while the first spouse’s chosen beneficiaries were guaranteed the eventual remainder. The $5.2M gap opens up entirely at the SECOND death, and entirely because of whether one box was checked on the first spouse’s estate tax return.
Why this is such a common, avoidable mistake
Portability must be affirmatively elected — it isn’t automatic, and critically, Form 706 must be filed to claim it even for estates that are otherwise well under the filing threshold and would normally have no reason to file at all. An executor focused on settling a modest, non-taxable-seeming estate can easily skip a return that “isn’t required,” not realizing that filing it anyway is the only way to preserve a potentially enormous future benefit for the surviving spouse.
Where this framework doesn’t apply
- The combined estate will never approach either spouse’s exemption. Below the exemption, portability doesn’t change anything — there’s no eventual tax to defer or reduce. Check whether state-level estate tax is a more realistic exposure even when federal exposure looks unlikely.
- The first spouse’s estate is in a state that doesn’t recognize portability. The federal DSUE can still apply to federal estate tax even if a state ignores it for its own state-level tax.
- The executor missed the original deadline. Rev. Proc. 2022-32 offers simplified relief for a late election in many cases — this isn’t automatically a permanently lost opportunity, but requires prompt action with an estate attorney.
- A bypass/credit shelter trust is being used instead of a QTIP. That structure uses the exemption directly at the first death rather than relying on the marital deduction plus later portability — a different mechanic with its own tradeoffs, similar in spirit to how married couples’ combined estate exemption works under portability generally.
What to actually do
- Confirm the executor files Form 706 and affirmatively elects portability — required even for estates well under the filing threshold.
- Check whether the relevant state recognizes portability for its own state estate tax, separately from the federal election.
- If the deadline was missed, ask an estate attorney about simplified late-election relief under Rev. Proc. 2022-32 before assuming the DSUE is gone.
- Model the second-death tax bill periodically as asset values and the exemption both change over time.
- Compare a QTIP-plus-portability structure against a bypass trust with an estate attorney — the right choice depends on control goals over the remainder, not just the tax math.
Open the QTIP Portability Calculator → and see what the election is worth for your own numbers.
Quick answers
What is a QTIP trust?
A Qualified Terminable Interest Property trust that lets the first spouse to die provide the surviving spouse with income for life, while the FIRST spouse controls who receives the remainder after the survivor's death — the standard tool for blended families who want to provide for a current spouse while ensuring assets eventually reach children from a prior marriage.
Does a QTIP trust avoid estate tax?
No — it defers it. QTIP funding uses the unlimited marital deduction at the first death, so no tax is owed then, but the trust's grown value is included in the surviving spouse's own gross estate under IRC §2044 at the second death, when it's taxed based on the combined estate at that point.
What is portability (DSUE) and why does it matter for a QTIP trust?
Because QTIP funding uses the marital deduction rather than the deceased spouse's exemption, that exemption is typically still unused at the first death. If the executor timely elects portability on Form 706, this Deceased Spousal Unused Exclusion (DSUE) becomes available to the surviving spouse, effectively adding to their own exemption at the second death.
What happens if an executor forgets to elect portability?
The unused exemption from the first spouse's death is generally forfeited permanently, though Rev. Proc. 2022-32 offers simplified relief for a late election in many cases. Without either the timely election or successful late relief, the surviving spouse is left with only their own exemption to cover a potentially much larger combined estate at the second death.