Educational information, not individual financial advice.
Key Takeaways
Estate tax is paid by an estate on transfers at death. Inheritance tax (where it exists) is paid by heirs on what they receive. The U.S. federal government imposes estate tax only; some states impose estate tax, inheritance tax, or both.
For most Americans, federal estate tax is not a concern — the exemption is currently very high. But state taxes, and future changes to federal law, make the topic worth understanding.
The $15M exemption was enacted by the One Big Beautiful Bill Act in 2025 and made "permanent" — meaning it won't automatically revert to the previous lower amount ($5M indexed) as was scheduled under prior law. Congress could change this in the future, but there's no scheduled sunset.
At this exemption level, only an extremely small fraction of estates owe federal estate tax:
Estimates suggest fewer than 4,000 estates per year (out of about 2.8 million annual deaths) owe any federal estate tax.
If one spouse dies having used less than the full exemption, the surviving spouse can "port" the unused amount by filing Form 706 within 5 years of the first death.
Example: Husband dies with $10M assets. His exemption at death is $15M. His estate uses $10M of exemption, leaving $5M of "Deceased Spousal Unused Exclusion" (DSUE). When the wife later dies, she has her own $15M plus the ported $5M = $20M total exemption.
Portability is not automatic — it requires filing Form 706 at the first death, even if no tax is owed. Failing to make the portability election is a common and expensive mistake for estates that might later exceed the surviving spouse's exemption.
A parallel tax on transfers that skip a generation (e.g., grandparent directly to grandchild). The GST exemption equals the estate/gift exemption ($15M in 2026). Transfers to skip-persons above the GST exemption face a 40% GST tax in addition to any estate/gift tax.
This prevents wealthy families from avoiding a generation of estate tax by jumping over their children.
About 12 states plus DC impose estate or inheritance tax, often with much lower thresholds than federal:
States with estate tax (and 2025 exemption levels, approximate):
| State | Exemption | Top rate |
|---|---|---|
| Connecticut | $13.99M (matches federal) | 12% |
| Hawaii | $5.49M | 20% |
| Illinois | $4M | 16% |
| Maine | $6.8M | 12% |
| Maryland | $5M | 16% |
| Massachusetts | $2M | 16% |
| Minnesota | $3M | 16% |
| New York | $6.94M | 16% |
| Oregon | $1M | 16% |
| Rhode Island | $1.8M | 16% |
| Vermont | $5M | 16% |
| Washington | $2.2M | 20% |
| DC | $4.7M | 16% |
States with inheritance tax: Iowa (phasing out), Kentucky, Maryland (also has estate tax), Nebraska, New Jersey, Pennsylvania.
Oregon and Massachusetts in particular have low exemptions — $1M and $2M respectively — which affects many middle-class homeowners with retirement savings in those states.
The gross estate includes:
Deductions from gross estate to reach taxable estate:
Life insurance proceeds are income-tax-free to the beneficiary, but they're included in your estate if you own the policy. A $2M policy adds $2M to your taxable estate.
For estates approaching the exemption, this can be a problem. The solution is an Irrevocable Life Insurance Trust (ILIT) — the trust owns the policy, so proceeds aren't in your estate. Proper ILIT structuring has specific requirements (Crummey powers, 3-year lookback rule).
Pre-tax retirement accounts (401(k), Traditional IRA) are double-taxed at death if they push you over the exemption:
Combined effective rates can approach 65–70% on large pre-tax balances for wealthy estates. Roth conversions during life can reduce this, as can strategic beneficiary designations that allow estate-tax-paid-first treatment.
The Estate page calculates your projected taxable estate based on your asset mix, current estate and gift exemption, and any state-level rules you've configured. The Gifting Strategy feature models annual exclusion gifts and their effect on the long-run taxable estate.
With the 2026 federal estate-tax exemption around $15M per individual, roughly what share of U.S. estates owe federal estate tax?
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