United States
Hong KongThe marital deduction, portability, and why a trust may still be better
Transfers to a US citizen spouse qualify for an unlimited marital deduction. Portability allows the surviving spouse to use the deceased spouse's unused exclusion, provided an estate tax return is filed to elect it.
Two mechanisms doing similar work, and the exam asks when each is preferable.
The marital deduction
Unlimited, for outright transfers to a surviving spouse who is a US citizen.
It defers rather than eliminates. Property passing to the survivor is in the survivor's estate at their death, so the tax is postponed to the second death.
A non-citizen spouse does not qualify. A qualified domestic trust, or QDOT, is the mechanism that allows the deduction where the survivor is not a citizen.
Terminable interests
The deduction is generally unavailable for a terminable interest - one that ends on a condition, such as remarriage.
The QTIP trust is the exception. It pays all income to the surviving spouse for life, the executor elects QTIP treatment, and the property qualifies for the deduction while the first spouse still controls who ultimately receives it.
That control is the point. A QTIP is the standard answer for a second marriage where the client wants to provide for the survivor and ensure the remainder passes to children from the first marriage.
Portability
The deceased spouse's unused exclusion amount transfers to the survivor, who can add it to their own.
It is not automatic. A federal estate tax return must be filed to elect it, even where no tax is due and no return would otherwise be required.
A surviving spouse who did not file to elect portability has lost the deceased spouse's exclusion. Advising the executor to file, even where the estate is far below the threshold, is one of the most valuable things a planner does in the year after a death.
Why a credit shelter trust may still be better
| Feature | Portability | Credit shelter trust |
|---|---|---|
| Growth after the first death | In the survivor's taxable estate | Outside the taxable estate |
| Requires a return | Yes, to elect | No election needed |
| Control of the remainder | None - the survivor decides | Fixed by the first spouse |
| Creditor and remarriage protection | None | Yes |
| GST exemption | Not portable | Can be allocated |
| Step-up at the second death | Yes | No |
| Simplicity | Higher | Lower |
The first row is the substantive advantage. Assets in a credit shelter trust grow outside the survivor's estate, so appreciation escapes tax at the second death.
The GST row matters too: the generation-skipping exemption is not portable, so a couple planning for grandchildren generally needs a trust rather than portability alone.
What most couples actually need
At a USD 15 million exclusion and full portability, most couples need neither structure for tax reasons.
They may still want a trust for control, blended family provisions, creditor protection or professional management - which is the honest reason to recommend one, and a better one than tax.
The transfer tax exclusion was changed by the 2025 reconciliation act and is indexed thereafter. Confirm the current figure before relying on it, and check state law separately.
Common questions
What is the marital deduction?
An unlimited deduction for transfers to a surviving spouse who is a US citizen. It defers tax to the second death rather than eliminating it.
What if the spouse is not a US citizen?
The deduction is unavailable for outright transfers. A qualified domestic trust, or QDOT, is the mechanism that allows it.
What is portability?
The transfer of the deceased spouse's unused exclusion to the survivor. It requires a federal estate tax return to be filed to elect it, even where no tax is due.
Why might a credit shelter trust be better?
Growth after the first death stays outside the survivor's estate, the remainder is controlled by the first spouse, creditor and remarriage protection apply, and the GST exemption can be allocated - none of which portability offers.
What is a QTIP trust for?
Providing income to a surviving spouse for life while the first spouse controls who receives the remainder. It is the standard answer for a second marriage with children from a first.