The Federal Estate Tax Exemption (and the 2026 Cliff)
Fewer than 0.1% of US estates actually pay federal estate tax — but that number could double or triple after 2025 unless Congress extends the current exemption.
Estate tax in one paragraph
When you die, the value of everything you own gets totaled. If it exceeds the federal exemption, the excess is taxed at up to 40%. The exemption is unified with gift tax — what you gave away over the annual exclusion during life reduces what's exempt at death.
2024 numbers
- Federal exemption: $13.61 million per person ($27.22M per couple with portability)
- Top federal rate: 40%
- Annual gift exclusion: $18,000/recipient
Portability for married couples
If the first spouse dies without using their full exemption, the unused portion can be 'ported' to the surviving spouse — but only if the executor files Form 706 within 5 years of death. Skipping this filing for modest estates can cost the surviving spouse millions of exemption later.
The 2026 sunset
Under current law, the exemption reverts to roughly $7 million per person (2026 inflation-adjusted) on January 1, 2026. Estates between $7M and $13.6M would suddenly be exposed to estate tax. Gifts made in 2024–2025 above the future exemption are NOT clawed back (per IRS regulations).
State estate and inheritance taxes
12 states + DC have their own estate tax (lower exemptions, e.g., Massachusetts and Oregon at $2M, Washington and Minnesota at $3M). 6 states have inheritance tax paid by beneficiaries. Domicile matters as much as federal location.
Common planning tools
- Annual exclusion gifting
- Spousal Lifetime Access Trusts (SLATs)
- Grantor Retained Annuity Trusts (GRATs)
- Charitable remainder/lead trusts
- Life insurance held in an ILIT
- Family limited partnerships (with valuation discounts)
All require attorney/CPA setup — none are DIY.
Run your own numbers
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