When someone dies, everything they own — such as homes, bank accounts, investments and personal belongings — becomes part of their estate for the purposes of the U.S. federal estate tax.
But only if the estate’s value surpasses a certain threshold will it be subject to the estate tax, sometimes called the “death tax.” The tax rate for estates currently ranges from 18 to 40 percent, depending on how much of the estate exceeds the exemption amount.
That exemption amount is $13.99 million per individual in 2025 (this amount is adjusted each year for inflation). Only the amount of your estate beyond the exemption is subject to tax, so the estate tax currently applies only to ultra-high-value estates.
Exemption amount for 2026
The current exemption amounts are slated to revert to much lower amounts at the end of 2025, when many of the provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire. The TCJA, which passed in 2017, doubled the estate tax exemption amount through the end of 2025.
While it’s unclear what will happen with the estate tax after 2025, there’s a decent chance lawmakers will extend the TCJA’s provisions, including, potentially, the higher estate tax exemption amounts. In fact, a draft version of the tax bill currently in Congress includes a $15 million per person estate tax exemption for 2026 (though that House bill still needs to be reconciled with a Senate version).
What is the estate tax?
The estate tax is a tax on the value of a person’s assets at the time of their death, applied before anything is passed on to heirs. Unlike an inheritance tax, which beneficiaries pay on what they receive, the estate tax is settled by the estate itself, before assets are distributed to beneficiaries.
What assets are included in an estate?
According to the IRS, the gross estate includes all assets the deceased owned or controlled, such as:
- Real estate, homes, land and rental properties
- Bank accounts, checking, savings or money market accounts
- Investments, stocks, bonds and mutual funds
- Retirement accounts like 401(k)s and IRAs
- Business interests
- Life insurance proceeds owned by the deceased
- Vehicles, art, jewellery and other valuable personal property
The taxable estate is what’s left after subtracting debts, funeral costs and charity donations.
Estate tax rates
The federal estate tax is progressive, meaning the rate increases with the estate’s value. The tax rate ranges from 18 to 40 percent, depending on how much the estate’s value exceeds the exemption threshold.
| Taxable amount over exemption | Tax rate |
|---|---|
| Up to $10,000 | 18% |
| $10,001 to $20,000 | 20% |
| $20,001 to $40,000 | 22% |
| $40,001 to $60,000 | 24% |
| $60,001 to $80,000 | 26% |
| $80,001 to $100,000 | 28% |
| $100,001 to $150,000 | 30% |
| $150,001 to $250,000 | 32% |
| $250,001 to $500,000 | 34% |
| $500,001 to $750,000 | 37% |
| $750,001 to $1 million | 39% |
| Over $1 million | 40% |
| Source: IRS |
Estate tax exemption
The good news is, most estates avoid federal estate tax because their value falls below the exemption threshold.
As of 2025, the estate tax exemption is $13.99 million per individual, up from $13.61 million in 2024. For married couples, the exemption doubles to $27.98 million, up from $27.22 million in 2024. You only pay tax on the portion of the estate that surpasses these thresholds.
How estate tax exemptions work
- Lifetime exemption: The lifetime exemption allows up to $13.99 million in tax-free transfers. For example, if an estate is worth $15 million, only the remaining $1.01 million is taxed.
- Portability for spouses: Spouses can transfer a deceased partner’s unused exemption to their own estate.
- Annual gift tax exclusion: In 2025, you can gift up to $19,000 per recipient tax-free each year, up from $18,000 in 2024. Married couples can gift up to twice that amount per recipient.
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Who pays the estate tax and how it works
The estate pays the federal estate tax before heirs receive their assets. An executor or personal representative of the estate handles the process, from filing the tax return to making the payment.
Here’s how the process typically works:
- Calculate the gross estate value: Including real estate, bank accounts, investments, business interests and personal property.
- Subtract allowable deductions: Common deductions include debts, funeral expenses, charitable donations and assets left to a surviving spouse.
- Determine the taxable estate: If the total value after deductions exceeds the exemption, the remaining amount is subject to estate tax.
- Apply the tax rates: The taxable portion of the estate is taxed according to the progressive tax brackets listed above, set by the IRS.
- File form 706 and pay the tax: The estate tax return is due within nine months of a person’s death, with an optional six-month extension. Any taxes owed must be paid before distributing assets to heirs.
If the estate doesn’t have enough liquid assets to cover the tax bill, the executor may need to sell property, securities or other assets to raise funds. In addition to the federal estate tax, some states impose their own estate taxes, with lower exemption limits than the federal government.
In addition to the federal estate tax, 12 states and the District of Columbia impose estate taxes as of 2024.
Inheritance tax vs. estate tax
People often confuse estate taxes and inheritance taxes, but they function differently.
| Estate tax | Inheritance tax | |
|---|---|---|
| Who pays it? | The estate | The beneficiary |
| Federal or state? | Federal (and some states) | State only (no federal inheritance tax) |
| Who is affected? | Applies if estate value exceeds exemption |
Applies only if person dies in a state that imposes an inheritance tax |
As of 2025, only five states charge an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Each state’s rules vary, but in many cases, spouses and close relatives are exempt.
How to minimize estate taxes
Estate planning can reduce tax liability and ensure more wealth passes to your heirs. Here are some key strategies:
Gift throughout your lifetime
One effective way to lower estate taxes is through strategic gifting during your lifetime. By transferring assets to beneficiaries early, you can reduce the overall size of your taxable estate and minimize potential tax liabilities.
For example, the IRS allows you to gift up to $19,000 per recipient in 2025 without triggering the need to file a gift tax return. (This amount adjusts each year for inflation.) This annual exclusion lets you transfer wealth tax-free over time.
If you give someone more than the annual exclusion amount, you typically have to file a gift tax return but you likely won’t owe gift taxes. Gift taxes aren’t owed until the amount given away over the annual limits exceeds the lifetime estate and gift tax exclusions amount, which currently is $13.99 million.
Establish trusts for tax benefits
Setting up a trust is another effective estate planning tool. Trusts can help you reduce or eliminate estate taxes and control how your assets are distributed.
Some common tax-saving trusts include:
- Irrevocable Life Insurance Trust (ILIT): Prevents life insurance proceeds from being included in the taxable estate.
- Grantor Retained Annuity Trust (GRAT): Allows the transfer of appreciating assets to heirs with minimal gift tax implications.
- Charitable Remainder Trust (CRT): Creates income for donors with the assets ultimately going to a charitable cause.
- Charitable Lead Trust (CLT): Creates income for charities while the assets are ultimately distributed to the heirs.
- Generation-Skipping Trust (GST): Allows assets to bypass a generation and benefit grandchildren, great-grandchildren or others at least 37.5 years younger than the trust creator.
Leverage life insurance policies
Life insurance provides liquidity to cover estate taxes and other costs, so that your beneficiaries receive full inheritance. Certain life insurance policies, such as second-to-die (survivorship) policies, pay out upon the death of the second insured person, which helps families cover estate tax obligations without needing to liquidate assets.
If structured properly, life insurance proceeds can be excluded from the taxable estate, preserving the full value of the payout.
Seek professional guidance
Estate tax laws are complex and constantly evolving. An estate planning attorney, financial advisor, or tax professional can help you create a tax-efficient plan tailored to your needs. They can provide expert advice on gifting, trust structuring and wealth transfers to preserve the maximum amount of assets for beneficiaries.
Bottom line
Estate tax mainly affects high-net-worth individuals, as the vast majority of estates fall below the current exemption threshold. However, strategic estate planning can help reduce tax liability for larger estates. Gifting, charitable contributions and trusts are effective ways to lower an estate’s taxable value. Use estate planning attorneys and financial advisors to guide the efficient transfer of assets to heirs and keep compliant with tax laws.
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