Estate Tax (Federal)
The federal estate tax is a tax on the transfer of property at death, applying to estates exceeding the exemption amount ($13.99M in 2025, $15M in 2026) at rates up to 40%.
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Exam Tip
2025 exemption: $13.99M. 2026 exemption: $15M. Rate: 40%. Portability allows spouses to share exemption.
What is Federal Estate Tax?
The estate tax is levied on the transfer of a deceased person's assets before distribution to heirs.
2025/2026 Exemption
| Year | Exemption per Person |
|---|---|
| 2025 | $13.99 million |
| 2026 | $15 million |
Estate Tax Rate
40% flat rate on amounts exceeding exemption.
Key Features
| Feature | Description |
|---|---|
| Portability | Surviving spouse can use deceased spouse's unused exemption |
| Step-up in Basis | Heirs receive stepped-up basis to FMV at death |
| Unlimited Marital Deduction | Transfers to spouse are tax-free |
| Charitable Deduction | Gifts to charity reduce taxable estate |
Planning Strategies
- Credit shelter trusts
- Irrevocable life insurance trusts
- Charitable remainder trusts
- Family limited partnerships
- Grantor retained annuity trusts
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Related Terms
Gift Tax
Gift tax is a federal tax on transferring assets to another person while alive, with an annual exclusion of $18,000 per recipient in 2024 ($36,000 for married couples splitting gifts). The lifetime exemption of $13.61 million is unified with the estate tax exemption.
Generation-Skipping Transfer Tax (GSTT)
The GSTT is a 40% federal tax on transfers to persons two or more generations below the transferor, designed to prevent families from avoiding estate taxes by skipping generations.
Step-Up in Basis
Step-up in basis is a tax provision that adjusts the cost basis of inherited assets to their fair market value (FMV) at the date of the decedent's death, effectively eliminating unrealized capital gains that accumulated during the decedent's lifetime. This allows heirs to sell inherited assets with little or no capital gains tax.
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