The 2025 federal estate tax exemption is $13.61 million per person

The federal estate tax exemption for 2025 is $13.61 million per individual. This means you can pass that amount to your heirs without owing federal estate tax. For married couples filing jointly, the exemption doubles to $27.22 million. These figures are adjusted each year for inflation, so the amount changes annually.

The exemption applies only to estates above the threshold. If your estate is worth less than $13.61 million, federal estate tax does not apply to you at all, regardless of how you structure your will or trust. The exemption covers assets you own outright, retirement accounts, life insurance proceeds, and property held in certain trusts.

Key Takeaways

  • The 2025 exemption is $13.61 million per person and $27.22 million for married couples, adjusted annually for inflation.
  • Only estates exceeding the exemption threshold owe federal estate tax; smaller estates are not affected.
  • The exemption is set to drop to roughly $7 million per person on January 1, 2026, unless Congress changes the law.
  • State estate taxes have their own lower exemptions and operate separately from the federal exemption.
  • Your state of residence determines whether you owe state estate tax, which can apply even if you do not owe federal tax.

How the exemption changes year to year

The IRS adjusts the exemption amount each January based on inflation from the previous year. The 2025 figure of $13.61 million reflects the inflation adjustment announced in October 2024. In 2024, the exemption was $13.61 million. In 2023, it was $12.92 million. The pattern shows steady increases tied to the Consumer Price Index.

You do not need to do anything to receive the updated exemption. It applies automatically when you file your estate tax return or when your executor settles your estate. The exemption you use is the one in effect in the year of your death, not the year you created your will or trust.

The exemption expires on January 1, 2026

The current exemption amount is temporary. It was set by the Tax Cuts and Jobs Act of 2017, which doubled the exemption from roughly $5.5 million to $10 million (adjusted for inflation). That law included a sunset provision: on January 1, 2026, the exemption is scheduled to drop back to approximately $7 million per person, adjusted for inflation.

Congress would need to pass new legislation to extend the higher exemption beyond 2025. As of now, no law has changed this timeline. If the exemption drops as scheduled, many more estates will owe federal tax starting in 2026. This is why some people with estates between $7 million and $13.61 million are considering tax planning strategies before the end of 2025.

State estate taxes operate separately

Seventeen states plus Washington, D.C., impose their own estate taxes. These state exemptions are much lower than the federal exemption and do not increase with inflation at the same rate. For example, New York has a state estate tax exemption of $6.94 million in 2025. Massachusetts has $1 million. Oregon has $1 million. Illinois has no state estate tax, but other states have thresholds as low as $275,000.

You may owe state estate tax even if your estate is below the federal exemption. Your state of residence at death determines which state tax rules apply. If you own real estate in a state other than where you live, that state may also tax your estate. Check your state's revenue or tax department website for the current exemption and rates.

How the exemption works with your will or trust

The exemption is not something you claim on a form during your lifetime. It applies when your estate is settled after your death. Your executor or trustee will calculate the total value of your estate, subtract the exemption amount, and determine whether federal estate tax is owed on the remainder.

If your estate is below the exemption, no federal estate tax return is required. If your estate exceeds the exemption, your executor must file IRS Form 706 (the federal estate tax return) within nine months of your death, even if no tax is ultimately owed. The return documents the exemption used and the calculation of any tax due.

Planning strategies before 2026

People with estates between $7 million and $13.61 million may want to review their plans before the exemption drops. Some strategies include making large gifts to family members or charities before 2026 (gifts use the same exemption pool as estates), establishing trusts that lock in the current exemption, or creating charitable remainder trusts that reduce taxable estate value.

These strategies require planning with an attorney or tax professional who understands estate law. The cost of professional advice is often far less than the tax owed if you do nothing. If your estate is below $7 million, the 2026 change may not affect you. If your estate is well above $13.61 million, you will owe tax regardless of the exemption level.

Frequently Asked Questions

Do I owe federal estate tax if my estate is worth $10 million?

No. In 2025, the exemption is $13.61 million, so a $10 million estate owes no federal estate tax. However, check your state's exemption. If you live in a state with a lower estate tax exemption, you may owe state tax even though you owe no federal tax.

What happens to my exemption if I die in 2026?

The exemption that applies is the one in effect on the date of your death. If you die on January 1, 2026 or later, the lower exemption (roughly $7 million, adjusted for inflation) applies unless Congress extends the higher amount before then. This is why timing matters for some estates.

Can my spouse use my unused exemption if I die first?

Yes, through a process called portability. If you are married, your executor can file a form to preserve your unused exemption so your surviving spouse can use it. This allows a married couple to use up to $27.22 million in 2025 without filing an election. Your executor must file Form 706 to claim portability, even if no tax is owed.

Does the exemption cover life insurance?

Life insurance proceeds are included in your taxable estate unless the policy is owned by an irrevocable trust or another person. If you own the policy, the death benefit counts toward your estate value and uses your exemption. Transferring ownership of a policy to a trust can remove it from your estate, but this requires planning before you become ill.

What if my estate grows after I create my will?

The exemption applies based on your estate's value at death, not when you wrote your will. If your estate grows significantly after you create your plan, you may cross into taxable territory. This is another reason to review your plan periodically, especially if your income, investments, or property holdings increase substantially.