The estate tax is a federal tax on the total value of money and property someone leaves behind when they die

The estate tax applies only to estates above a certain dollar threshold. That threshold changes every year based on inflation. In 2024, for example, the federal estate tax applies only to estates worth more than $13.61 million. Most people's estates fall below this amount and owe no federal estate tax at all.

The tax is paid from the estate itself — the money and property left behind — before anything goes to heirs. The executor or administrator of the estate (the person handling the deceased's affairs) is responsible for filing the estate tax return and paying what is owed. Some states also have their own estate taxes with lower thresholds, so a state tax may apply even when the federal tax does not.

Key Takeaways

  • Federal estate tax only applies to estates worth more than $13.61 million in 2024, a threshold that rises each year with inflation.
  • The tax rate on taxable estates is a flat 40 percent of the amount above the threshold.
  • Married couples can combine their thresholds, effectively doubling the amount that passes tax-free to heirs.
  • Some states impose their own estate taxes with much lower thresholds, so you may owe state tax even if you owe no federal tax.
  • The federal threshold is set to drop significantly in 2026 unless Congress changes the law.

How the federal estate tax threshold works

The threshold is the dividing line between what is taxed and what is not. If an estate is worth $13 million, no federal estate tax is owed. If it is worth $14 million, only the $1 million above the threshold is subject to tax. The threshold itself is not taxed.

This threshold is called the "exemption" or "exclusion amount." It increases each year to keep pace with inflation. In 2023 it was $12.92 million per person. In 2024 it became $13.61 million. The IRS announces the new amount each October for the following year. This means the threshold you need to know depends on when the person dies.

The threshold is temporary under current federal law. It is scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress passes new legislation. This is a significant change that affects estate planning for people with substantial assets.

The tax rate and how much is owed

The federal estate tax rate is a flat 40 percent of the taxable amount. This is the highest tax rate in the federal tax code. If an estate is worth $15 million in 2024, the taxable portion is $1.39 million ($15 million minus the $13.61 million threshold). The tax owed would be $556,000 (40 percent of $1.39 million).

The 40 percent rate applies to the entire taxable amount — there are no brackets or lower rates for smaller portions. This is different from income tax, which uses graduated brackets. The high rate is why estate tax planning matters for people with large estates.

How married couples can double their protection

Married couples can combine their exemptions through a process called "portability." This means a surviving spouse can use both their own threshold and the unused portion of their deceased spouse's threshold. In 2024, this effectively allows $27.22 million to pass to heirs tax-free ($13.61 million times two).

Portability is not automatic. The executor of the deceased spouse's estate must file an estate tax return and make an election to allow portability, even if no tax is owed. This is a technical requirement, but it is important — without the return and election, the surviving spouse loses the ability to use the deceased spouse's unused exemption.

Unmarried partners, adult children, and other heirs do not get this doubling benefit. Each person has only their own individual threshold, which is zero for most people (only the person who dies has the exemption).

State estate taxes and inheritance taxes

Twelve states and the District of Columbia have their own estate taxes. These are separate from the federal tax and use lower thresholds. Massachusetts, for example, has a state estate tax threshold of $1 million. Oregon's is $1 million. New York's is $6.94 million as of 2024. If you live in or own property in one of these states, you may owe state tax even if your estate is below the federal threshold.

Some states also have inheritance taxes, which are taxes on what heirs receive rather than taxes on the estate itself. Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance taxes. The rates and thresholds vary by state and by the relationship between the deceased and the heir (spouses and children often pay lower rates or no tax).

The states with estate or inheritance taxes are: Connecticut, Delaware, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Washington, and the District of Columbia. If you own significant assets and live in or own property in one of these places, you should understand the state rules.

What counts toward the estate and what does not

The estate includes all property the person owned at death: real estate, bank accounts, investments, retirement accounts, life insurance proceeds, vehicles, and personal property like jewelry or art. It also includes certain gifts made within three years of death (in some cases) and property the person had a legal interest in but did not directly own.

Some things pass outside the estate and are not subject to estate tax. These include property left through a beneficiary designation (like life insurance or retirement accounts with a named beneficiary), property held in a living trust, and property owned as "joint tenants with rights of survivorship" (a form of joint ownership that passes automatically to the surviving owner). These pass directly to the named beneficiary or surviving owner and do not go through the estate.

Debts, funeral expenses, and administrative costs of settling the estate reduce the taxable amount. If an estate is worth $14 million but has $500,000 in debts and expenses, the taxable portion is reduced accordingly.

The 2026 threshold change and why it matters

The current high exemption amounts ($13.61 million per person in 2024) are set to expire on December 31, 2025. Starting January 1, 2026, the threshold will drop to approximately $7 million per person (adjusted for inflation), unless Congress passes new law to extend or change it. This is sometimes called the "sunset" of the Tax Cuts and Jobs Act of 2017.

This change affects people with estates between $7 million and $13.61 million. If you fall into this range, you may owe no federal estate tax if you die before 2026, but your heirs could owe significant tax if you die after 2026. This timing uncertainty is why many people with substantial assets work with an estate planning attorney to understand their options.

Congress could change this law before 2026, either by extending the current threshold or by setting a different one. The outcome is uncertain and depends on future legislative action. If you have an estate in this range, it is worth reviewing your plan periodically as the 2026 date approaches.

Frequently Asked Questions

Do I have to file an estate tax return if my estate is below the threshold?

Not for federal purposes if the estate is below the exemption amount. However, if you are married and want to preserve portability (so your surviving spouse can use your unused exemption), the executor must file a federal estate tax return even if no tax is owed. Some states require estate tax returns below their state threshold as well.

Does the estate tax apply to retirement accounts like IRAs and 401(k)s?

Yes, retirement accounts are included in the taxable estate if they are owned by the person who dies. However, if you name a beneficiary on the account, it passes directly to that person outside the estate. The beneficiary will owe income tax on withdrawals, but the account value counts toward the estate tax threshold.

Can I reduce my estate tax by giving money away before I die?

Yes. You can give up to $18,000 per person per year (in 2024) without using any of your exemption. Gifts above that amount use your exemption. Once your exemption is used up, any additional gifts above the annual limit are subject to gift tax. This is why some people with large estates use gifting as part of their plan.

What happens if my estate is worth more than the threshold?

The executor files a federal estate tax return (Form 706) and pays the 40 percent tax on the amount above the threshold from estate assets before distributing anything to heirs. The tax is paid from the estate itself, which reduces what heirs receive. Some estates use life insurance or other strategies to cover the tax without forcing the sale of assets.

Does life insurance count toward the estate tax threshold?

Yes, life insurance proceeds are included in the taxable estate if the deceased person owned the policy or had any incidents of ownership over it. If someone else owns the policy (like an irrevocable life insurance trust), the proceeds may not be included. This is a common estate planning strategy for people with large estates.