Estate Tax Liability: 2026 Exemption Limits and Planning Strategies
Quick Answer
Federal estate tax applies only to estates exceeding the exemption limit. In 2026, the exemption is $15 million per individual ($30 million per couple), set permanently by OBBBA and indexed for inflation from 2027. Most Americans don't trigger estate tax. If your estate is below $15M, no federal estate tax is owed. Above that, 40% estate tax applies to the excess. Additionally, many states charge state estate tax at much lower thresholds ($1M–$7M). Plan ahead if your net worth exceeds $5M or if you live in an estate tax state.
Correction notice (updated 30 July 2026). Earlier versions of this page gave the exemption as $13.61 million and said it was scheduled to sunset to about $7 million. The sunset was cancelled. The One Big Beautiful Bill Act (P.L. 119-21, signed 4 July 2025) set the basic exclusion amount at $15,000,000 per person from 2026 and made it permanent. If you gifted heavily or set up an irrevocable trust to beat that deadline, the deadline is gone — the gift still works, but the reason for the rush does not apply to anything you have not yet done.
Federal Estate Tax in 2026
| Metric | 2026 Value |
|---|---|
| Individual exemption | $15,000,000 |
| Married couple exemption (with portability) | $30,000,000 |
| Estate tax rate (above exemption) | 40% |
| Lifetime gift tax exemption (tied to estate exemption) | $15,000,000 |
| Generation-skipping transfer (GST) exemption | $15,000,000 |
| Annual gift exclusion (no tax, no reporting) | $19,000 per recipient |
What happened to the sunset rule: the 2017 TCJA doubled the exemption only for transfers made before 1 January 2026, after which it would have fallen to roughly $7 million. OBBBA removed that expiry and set the figure at $15,000,000, indexed for inflation from 2027 (Rev. Proc. 2025-32, §.41). No cliff is scheduled.
Who Pays Estate Tax?
Estate tax applies to very few Americans:
- ~99% of Americans die with estates below the exemption.
- Only estates exceeding $15M trigger federal estate tax.
- Example: $20M estate owes 40% on the $5M excess = $2,000,000 estate tax.
Who typically pays estate tax:
- High-net-worth individuals ($10M+ net worth)
- Successful business owners
- Real estate magnates
- Inheritors of family fortunes
- People with concentrated stock positions (inherited wealth)
Who doesn't pay estate tax:
- Middle-class families (98%+)
- Homeowners with $500K–$2M net worth
- Most wage earners and retirees
State Estate and Inheritance Taxes (Often Lower Thresholds)
Important: Many states charge estate or inheritance tax at much lower thresholds than federal law.
| State | Type | 2026 Threshold | Rate |
|---|---|---|---|
| California | None | N/A | 0% |
| Texas | None | N/A | 0% |
| Florida | None | N/A | 0% |
| New York | Estate tax | $7,350,000 | 3.06%–16% |
| Massachusetts | Estate tax | $2,000,000 | 0.8%–16% |
| Oregon | Estate tax | $1,000,000 | 10%–16% |
| Washington | Estate tax | $3,076,000 (deaths before 1 Jul 2026); $3,000,000 after | 10%–35% |
| Pennsylvania | Inheritance tax | No exemption; 0% to spouse, 4.5% to children | 0%–15% |
| New Jersey | Inheritance tax | $25,000 (Class C); spouse, children, parents exempt | 0%–16% |
| Connecticut | Estate tax | $15,000,000 (tied to the federal amount) | 12% flat |
Impact: A $5M estate in New York is under the $7.35M threshold and owes no state estate tax — but New York applies a cliff at 105% of the threshold ($7,717,500), above which the exemption vanishes entirely and the whole estate is taxed. A $2M estate in Washington owes nothing. A $600K estate in New Jersey owes nothing if it passes to a spouse, child or parent, but a sibling or friend would be taxed.
Every rate range above is a graduated schedule; the upper figure is the top marginal rate, not a flat rate on the excess. New Jersey repealed its estate tax in 2018 and Delaware repealed its own the same year, so both appear only in outdated lists.
Estate Tax Calculation Example
Scenario: $25M estate, married couple, 2026 exemption
| Item | Amount |
|---|---|
| Gross estate value | $25,000,000 |
| Married couple exemption | −$30,000,000 |
| Taxable estate | $0 (fully sheltered) |
| Federal estate tax owed | $0 |
Result: Married couple with $25M estate pays zero federal estate tax using both exemptions — provided the portability election was actually filed on the first death.
Scenario: $40M estate, married couple, no portability election filed
| Item | Amount |
|---|---|
| Gross estate value | $40,000,000 |
| Surviving spouse's own exemption | −$15,000,000 |
| Remaining taxable | $25,000,000 |
| Estate tax @ 40% | $10,000,000 |
Result: If no portability election is made on the first death, the survivor has only their own $15M exemption. The deceased spouse's unused exemption is not available.
With proper planning (portability election):
| Item | Amount |
|---|---|
| Gross estate value | $40,000,000 |
| Surviving spouse's own exemption | −$15,000,000 |
| Deceased spouse's unused exemption (ported) | −$15,000,000 |
| Taxable estate (second death) | $10,000,000 |
| Estate tax @ 40% | $4,000,000 |
Result: The portability election saves $6,000,000 here — the full $15M second exemption at the 40% rate. Your CPA files the election on the first spouse's Form 706. If the estate wasn't otherwise required to file, Rev. Proc. 2022-32 allows a portability-only election on a late return up to five years after death, so a missed deadline is often fixable.
Estate Tax Planning Strategies
Strategy 1: Use Annual Gift Exclusion ($19,000/year)
You can gift $19,000 per recipient per year without using your lifetime exemption or paying gift tax. A married couple can give $38,000 per recipient.
Example: Parents with a $20M estate, 3 adult children. Over 20 years, one parent gifting:
- Annual gifts: $19,000 × 3 children × 20 years = $1,140,000 removed from taxable estate
- Estate tax saved: $1,140,000 × 40% = $456,000
- (Held flat at $19,000 for clarity; the exclusion is indexed, so the real total would be higher)
Strategy 2: Spousal Portability Election
File an estate tax return on the first spouse's death and elect "portability." This allows the surviving spouse to use both spouses' exemptions ($30M).
Cost: Filing the Form 706 estate tax return ($2K–$5K in professional fees). Benefit: Save $2M–$5M in estate taxes if the estate is large.
Strategy 3: Charitable Remainder Trust (CRT)
Donate appreciated assets to a trust. You receive income for life (or term of years), then the charity gets the remainder.
Benefit:
- Avoid capital gains tax on appreciation
- Get an income tax deduction
- Reduce taxable estate
- Provide income stream
Example: $5M of appreciated stock. Donate to CRT. You receive 5% annual income ($250K/year), estate is reduced by ~$2M, and charity inherits the remainder.
Strategy 4: Donor-Advised Fund (DAF)
Donate appreciated assets (stocks, real estate) to a DAF. Take an immediate tax deduction. Recommend distributions to charities over time.
Benefit:
- Immediate tax deduction (reduces current taxes and taxable estate)
- Avoid capital gains tax on appreciated assets
- Control who receives distributions
- Flexible giving timeline
Strategy 5: Life Insurance Trust (ILIT)
Use a trust to own a life insurance policy. The death benefit passes outside the taxable estate.
Benefit: $5M life insurance policy outside taxable estate = $2M estate tax saved (40% rate).
Strategy 6: Dynasty Trust (if state allows)
Irrevocable trust that benefits multiple generations. Uses exemption to shelter wealth from estate tax across generations.
Benefit: Shelter $15M per person (matched by the $15M GST exemption) from transfer tax across generations, for as long as your state's rule against perpetuities allows.
Common Mistakes in Estate Tax Planning
❌ Assuming you're too small to need planning. If your net worth exceeds $2M or you live in an estate tax state, review your plan.
✅ Consult an estate planning attorney if your net worth is $2M+.
❌ Not filing portability election. If first spouse dies with $10M, failing to elect portability wastes $10M exemption.
✅ Your executor/CPA must file Form 706 on first death to preserve portability.
❌ Holding life insurance in personal name. Death benefit is included in taxable estate.
✅ Use a trust or LLC to own life insurance and exclude it from estate.
❌ Not reviewing your plan after changes. Marriages, births, major asset sales—these affect estate tax planning.
✅ Review your estate plan every 3–5 years or after major life events.
Step-by-Step Estate Tax Planning
Step 1: Calculate your net worth. Sum all assets (home, investments, retirement, business, life insurance) minus liabilities.
Step 2: Determine estate tax exposure. If below $15M (or $30M married, with portability elected), there is no federal estate tax. If above, plan ahead. State thresholds are far lower — check yours separately.
Step 3: Review your state. Twelve states and DC levy an estate tax (CT, HI, IL, ME, MD, MA, MN, NY, OR, RI, VT, WA) and five levy an inheritance tax (KY, MD, NE, NJ, PA). Thresholds are far lower than federal. Plan accordingly.
Step 4: Consult an estate planning attorney. They'll recommend trusts, portability, or other strategies specific to your situation.
Step 5: Implement documents. Likely a revocable living trust, durable power of attorney, healthcare directive, and possibly irrevocable trusts or life insurance trusts.
Step 6: Fund the trust. Retitle assets into the trust (home, investment accounts, etc.).
Step 7: Annual review. Revisit plan if major changes occur (inheritance, sale of business, move to different state, marriage/divorce).
FAQ
Q: If I die with a $5M estate, how much estate tax do I owe? A: Zero (federal). Your $15M exemption shelters the entire $5M. State estate tax may still apply — $5M is over the threshold in Oregon, Massachusetts, Minnesota, Washington and Illinois.
Q: If I'm married and die with a $20M estate, and my spouse survives me, how much estate tax? A: Zero at your death — everything passing to a surviving spouse qualifies for the unlimited marital deduction. At your spouse's later death, their own $15M exemption plus your ported $15M gives $30M of protection, so a $20M estate still owes nothing, provided the portability election was filed. Cost to file Form 706: $2K–$5K.
Q: Can I reduce my taxable estate by giving money to my kids now? A: Yes. Annual gifts of $19K per child (2026 limit) are tax-free and don't reduce your exemption. Larger gifts use your $15M lifetime exemption. Strategic gifts over 10+ years can meaningfully reduce estate tax — though only if the estate would otherwise be above the exemption.
Q: Is life insurance included in my taxable estate? A: Yes, if you own it. If an irrevocable trust owns the policy, it's excluded. This is a common strategy to shelter $5M–$10M life insurance proceeds from estate tax.
Q: Should I worry about estate tax if my net worth is $2M? A: Only if you live in a state with its own transfer tax. Federal estate tax doesn't apply until $15M (2026). At $2M you are already at or above the threshold in Oregon ($1M), Rhode Island (~$1.84M) and Massachusetts ($2M), and a Pennsylvania or New Jersey inheritance tax can apply to non-lineal heirs at any size.
Related Tools
- Use the estate tax liability calculator to estimate your tax.
- Set up a charitable remainder trust to reduce estate tax and provide income.
- Plan estate distribution to heirs.
- Track your net worth to monitor estate tax threshold.
Key Takeaway: Most Americans don't owe federal estate tax. If your net worth is $5M+, or if you live in an estate tax state, consult an estate planning attorney. Proper planning (portability election, trusts, charitable strategies) can save hundreds of thousands to millions in taxes.