Almost Nobody Pays It
The federal estate tax exemption is $13.99 million per person in 2025 — $27.98 million for a married couple using portability. Fewer than one estate in a thousand owes anything. Above the threshold, though, the rate is a flat 40%, which makes the planning worth doing for those it affects.
How the Calculation Works
- Gross estate — everything owned at death: property, investments, business interests, retirement accounts, and life insurance you controlled.
- Minus deductions — debts, funeral and administration costs, charitable bequests, and anything passing to a surviving spouse.
- Equals the taxable estate.
- Minus the exemption, reduced by any lifetime taxable gifts already made.
- Times 40% on whatever remains.
Two Unlimited Deductions
The marital deduction lets any amount pass to a U.S.-citizen spouse with no estate tax at all. The charitable deduction does the same for qualified charities. Together they mean a well-structured estate can defer or eliminate the tax entirely, though the marital deduction only defers it — the second spouse's estate faces the same test.
Portability
Since 2011 a surviving spouse can inherit the unused portion of the deceased spouse's exemption, doubling the effective threshold to $27.98 million. It is not automatic: the executor must file Form 706 within nine months of death, with a possible extension, even when no tax is owed. Failing to file is a common and expensive oversight.
Estate Tax Chart
| Taxable estate | Above $13.99M exemption | Federal tax at 40% | To heirs |
|---|---|---|---|
| $10,000,000 | $0 | $0 | $10,000,000 |
| $14,000,000 | $10,000 | $4,000 | $13,996,000 |
| $20,000,000 | $6,010,000 | $2,404,000 | $17,596,000 |
| $30,000,000 | $16,010,000 | $6,404,000 | $23,596,000 |
| $50,000,000 | $36,010,000 | $14,404,000 | $35,596,000 |
The 2026 Cliff
The elevated exemption came from the 2017 tax law and was scheduled to halve at the end of 2025, to roughly $7 million per person indexed for inflation. Legislation has repeatedly moved this date, so the planning consensus is to use exemption while it is available rather than assume it persists.
State Estate and Inheritance Taxes
Twelve states and the District of Columbia levy their own estate tax, several with exemptions far below the federal level — Oregon and Massachusetts begin around $1–2 million. Six states impose an inheritance tax paid by the recipient rather than the estate. A family well under the federal threshold can still face a substantial state bill.
Frequently Asked Questions
Do heirs pay income tax on an inheritance?
Generally no. Inherited assets also receive a stepped-up cost basis to the date-of-death value, which erases unrealised capital gains. Inherited retirement accounts are the main exception — withdrawals are taxed as ordinary income.
Does life insurance count?
Yes, if you owned the policy. Placing it in an irrevocable life insurance trust removes it from the estate, which is a standard planning move for estates near the threshold.
What is the annual gift exclusion?
$19,000 per recipient in 2025, with no limit on the number of recipients. Gifts within that amount never touch the lifetime exemption, which makes sustained annual gifting an effective way to reduce an estate over time.