In July, legislation came into effect that will boost the estate tax exemption to $15 million per individual ($30 million for couples) starting in 2026, with further annual inflation tweaks slated thereafter.
When a person passes away, their entire collection of possessions — ranging from real estate and bank holdings to stocks and personal effects — gets bundled into what’s called their estate for the sake of U.S. federal estate taxation.
However, this “death tax” only kicks in if the estate’s worth crosses a predefined exemption bar. Depending on how much the estate exceeds that bar, the tax rate varies between 18% and 40%.
For 2025, individuals enjoy an exemption set at $13.99 million, a figure that shifts annually to keep pace with inflation. Only the portion of an estate beyond this exemption faces taxation, restricting this levy mostly to the ultra-wealthy.
Which belongings make it into the estate pot?
The IRS defines the gross estate as encompassing all assets the departed had ownership or control over, such as:
- Real estate holdings: family homes, land tracts, rental units
- Bank balances: checking, savings, money market accounts
- Investment portfolios consisting of stocks, bonds, mutual funds
- Retirement funds like 401(k)s and IRAs
- Stake in privately held businesses
- Life insurance benefits owned by the deceased
- Personal valuables: vehicles, artwork, jewelry, collectibles
After deducting debts, funeral expenses, and charitable gifts, what remains is the taxable estate — the basis for calculating estate tax.
Snapshot of estate tax rates (2025)
The federal estate tax employs a graduated scale, meaning rates climb as the taxable amount grows beyond the exemption threshold:
| Up to $10,000 | 18% |
| $10,001–$20,000 | 20% |
| $20,001–$40,000 | 22% |
| $40,001–$60,000 | 24% |
| $60,001–$80,000 | 26% |
| $80,001–$100,000 | 28% |
| $100,001–$150,000 | 30% |
| $150,001–$250,000 | 32% |
| $250,001–$500,000 | 34% |
| $500,001–$750,000 | 37% |
| $750,001–$1,000,000 | 39% |
| Over $1,000,000 | 40% |
Exemption thresholds: Who dodges the estate tax?
Thankfully, the vast majority escape the federal estate tax radar, thanks to exemption limits that keep most estates out of the taxable zone.
- Individual exemption for 2025: $13.99 million (up from $13.61 million in 2024)
- Married couples’ combined exemption: $27.98 million (up from $27.22 million in 2024)
Taxes apply only to the estate’s value exceeding these ceilings.
Originally, these generous exemption levels were to revert to much lower numbers after 2025 as part of the Tax Cuts and Jobs Act (TCJA) sunset provisions. The TCJA, enacted in 2017, had doubled these limits through the end of 2025.
However, the recent “One Big Beautiful Bill” Act extended the TCJA’s enhanced exemptions, locking in the elevated levels for longer.
Come 2026, the exemption will climb to $15 million for single filers and $30 million for wedlock pairs, with inflation adjustments thereafter.
Decoding estate tax exemptions
Lifetime exemption: Up to $13.99 million may pass tax-free during one’s lifetime. For instance, if an estate totals $15 million, only the $1.01 million above that is taxable.
Spousal portability: Surviving spouses can inherit the unused exemption of their departed partner, bolstering their own exemption amount.
Annual gift tax exclusion: The 2025 threshold allows $19,000 per recipient to be gifted tax-free yearly, a slight increase from $18,000 in 2024. Couples can combine this to gift twice as much per recipient.
Who foots the bill—and how?
The estate shoulders the federal estate tax prior to the distribution of assets to heirs.
Executors or appointed personal representatives tackle everything involved, from assembling the tax return to remitting payment.
Estate tax filing and payment process in brief:
- Ascertain gross estate value: Combine real estate, financial accounts, investments, businesses, and personal possessions.
- Deduct eligible amounts: Typical subtractions include outstanding debts, funeral charges, charitable contributions, and assets left to a surviving spouse.
- Calculate taxable estate: If the net value breaches the exemption, the excess is subject to taxation.
- Apply stepped tax brackets: Tax is imposed progressively on the excess amount, following IRS-defined rates.
- Submit Form 706 and pay due taxes: Returns must be filed within nine months post-death, with an optional six-month extension. Payment is required before passing assets to beneficiaries.
Should the estate lack sufficient liquid assets to cover the tax obligation, the executor might be forced to liquidate property, securities, or other valuables to make good on the tax bill.
States with their own estate taxes
Beyond the federal estate tax, a number of states impose their own estate levies, generally with exemption amounts lower than the federal threshold.
As per 2024 data from the Tax Foundation, thirteen jurisdictions carry estate taxes:
- Connecticut
- District of Columbia
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
Estate tax vs. inheritance tax: What’s the difference?
These two taxation forms often get muddled, yet they operate distinctly.
| Who pays? | The estate itself | The beneficiary |
| Jurisdiction | Federal and some states | State only (no federal inheritance tax) |
| Applicability | Triggered if estate exceeds exemption | Only if death occurs in a state imposing inheritance tax |
Only five states implement an inheritance tax as of 2025:
- Kentucky
- Maryland
- Nebraska
- New Jersey
- Pennsylvania
Each state’s regulations differ, but close family members, including spouses, often benefit from exemptions. Notably, Maryland imposes both inheritance and estate taxes. Iowa eliminated its inheritance tax as of January 1, 2025, relieving beneficiaries there from this burden.
Strategies to temper estate tax bite
Proper estate planning is key to minimizing tax bills and preserving wealth for heirs. Consider these approaches:
Lifetime gifting to chip away at taxable estate
Shrewdly distributing assets during your lifetime is an effective path to shrinking the taxable estate and cutting future tax dues.
For 2025, the IRS lets you gift up to $19,000 per individual recipient annually without triggering gift tax filings, a figure that adjusts with inflation. Married couples can double this per recipient.
If gifts surpass the annual limit, you must file a gift tax return, but taxes won’t necessarily be owed unless you breach your lifetime exemption of $13.99 million.
Establish trusts to lock in tax advantages
Trusts serve as versatile vehicles to shelter assets from estate taxes and regulate inheritance distribution.
- Irrevocable Life Insurance Trust (ILIT): Keeps life insurance payouts off the taxable estate.
- Grantor Retained Annuity Trust (GRAT): Facilitates shifting appreciating assets to heirs with minimal gifting tax impact.
- Charitable Remainder Trust (CRT): Provides income to grantors before assets eventually benefit charity.
- Charitable Lead Trust (CLT): Sends income to charities upfront, then directs assets to heirs.
- Generation-Skipping Trust (GST): Bypasses a generation to favor grandchildren or younger beneficiaries by at least 37.5 years.
Use life insurance to ease liquidity crunch
Life insurance can supply the necessary funds to cover estate tax liabilities, protecting beneficiaries from needing to offload assets prematurely.
Policies like second-to-die (survivorship) insurance pay out upon the second death, assisting families in meeting tax payments.
When structured carefully, proceeds can be kept out of the taxable estate, safeguarding the full sum for heirs.
Get savvy help from professionals
The labyrinthine and ever-shifting landscape of estate tax rules calls for expert guidance. Attorneys specializing in estate planning, financial advisors, and tax pros can craft tailored, tax-savvy transfer plans.
They provide strategies on gifting, trust setups, and wealth handoffs to maximize inheritance and stay compliant.
Getting started: Who really pays estate tax?
Estate taxes mostly target the ultra-wealthy, since many estates stay below exemption levels.
Still, strategic planning can trim tax exposure for bigger estates. Gifting, philanthropy, and trusts are proven tools to pare down taxable estate valuations.
Expert advisors are invaluable allies to navigate the maze of laws and ensure assets pass efficiently and legally to the next generation.