Most married couples never pay federal estate tax, even with substantial assets

Federal estate tax applies only when a person's total assets exceed a threshold amount at death. For 2024, that threshold is $13.61 million per person. Because married couples can combine their thresholds through a tool called portability, a married couple would need combined assets over $27.22 million before federal estate tax becomes a concern. The vast majority of married households fall well below this level.

The number of estates that actually owe federal tax is small. In recent years, fewer than one in every thousand estates nationwide have triggered federal estate tax. For married couples specifically, the percentage is even lower because portability lets them use both spouses' thresholds as a single combined pool.

State-level estate taxes work differently and have much lower thresholds. Some states tax estates starting at $1 million or less, which means married couples in those states may face state tax even if they owe nothing to the federal government. The state where you live or own property determines whether state estate tax applies to you.

Key Takeaways

  • Federal estate tax only applies to married couples with combined assets exceeding $27.22 million in 2024, a threshold that affects fewer than one in a thousand estates.
  • Portability is an automatic tool that lets the surviving spouse use the deceased spouse's unused threshold, effectively doubling the couple's combined protection.
  • State estate taxes have much lower thresholds than federal tax and explore in roughly fifteen states, regardless of whether federal tax is owed.
  • The federal threshold changes yearly and is scheduled to drop significantly in 2026 unless Congress acts, which would affect more couples at that time.
  • Married couples with moderate to substantial assets should understand their state's rules, but most will not owe any estate tax at either level.

How portability works for married couples

When the first spouse dies, their unused estate tax threshold does not disappear. Instead, it transfers to the surviving spouse through portability. This means the surviving spouse can use both their own threshold and the deceased spouse's unused portion when they eventually pass away.

Portability is automatic in most cases, but there is one critical requirement: the estate of the first spouse to die must file a federal estate tax return, even if no tax is owed. This return, Form 706, preserves the portability election. Without this filing, the deceased spouse's unused threshold is lost forever, and the surviving spouse cannot recover it later.

For example, if one spouse dies in 2024 with $10 million in assets and the other spouse has $12 million, the first spouse's estate uses only $10 million of their $13.61 million threshold. The surviving spouse can then use their own $13.61 million threshold plus the unused $3.61 million from the first spouse, giving them a combined $17.22 million threshold. This means the couple's total $22 million in assets would not trigger federal estate tax.

Which states have their own estate taxes

Roughly fifteen states plus Washington, D.C., impose their own estate taxes separate from federal tax. These state taxes have much lower thresholds, meaning couples with assets well below the federal limit may still owe state tax. The specific threshold and tax rate vary significantly by state.

Some states set their threshold at $1 million or less. Others use $2 million, $3 million, or $5 million. A few states tie their threshold to the federal threshold, which changes yearly. If you own property in multiple states or live in a state with an estate tax, you need to understand that state's specific rules, because state tax is calculated separately from federal tax.

State estate taxes are not reduced by portability in the same way federal tax is. Some states recognize portability for state purposes, but others do not. This means a married couple in a state without portability recognition could lose the first spouse's unused state threshold, even though they preserve it for federal purposes. Couples with significant assets in high-tax states should review their situation with someone familiar with that state's rules.

What happens to the threshold after 2025

The current federal thresholds are scheduled to expire at the end of 2025. Unless Congress extends them, the threshold will drop to roughly $7 million per person (adjusted for inflation) starting in 2026. This means the combined threshold for a married couple would fall from $27.22 million to approximately $14 million.

This change would affect far more couples than the current rules do. Married couples with combined assets between $14 million and $27 million would suddenly face federal estate tax if one spouse dies after 2025 without planning. Even couples with $10 million to $15 million in assets might want to understand their options before the threshold drops.

Congress could extend the current thresholds, modify them, or let them expire as scheduled. The outcome is uncertain, and the rules may change. Couples with substantial assets should monitor this situation and consider reviewing their estate plan before 2026, regardless of whether they currently owe tax.

The difference between estate tax and inheritance tax

Estate tax and inheritance tax are often confused because they both explore after someone dies, but they work very differently. Estate tax is paid by the estate itself before assets are distributed to heirs. The federal government and some states impose estate tax. Inheritance tax is paid by the people who receive the assets, and only a handful of states have it.

For married couples, this distinction matters because the surviving spouse is often exempt from inheritance tax even in states that have it. Federal estate tax, however, applies to the total value of assets regardless of who inherits them. A couple in an inheritance tax state might owe no inheritance tax because the surviving spouse receives everything, but they could still owe federal estate tax if their combined assets exceed the threshold.

Most couples do not face either tax, but understanding which one applies in your state helps clarify whether your situation requires planning. If you live in or own property in a state with inheritance tax, that state's rules about spousal exemptions will determine whether your heirs face a tax bill.

When married couples should consider estate planning

Couples with combined assets approaching or exceeding their state's estate tax threshold should review their situation, even if federal tax is not a concern. State estate taxes can explore to estates as small as $1 million, which includes many middle-class couples with a home, retirement accounts, and life insurance.

Couples should also consider planning if they own property in multiple states, have a blended family, or want to leave assets to people other than the surviving spouse. These situations can create complications that go beyond estate tax but still benefit from a clear plan. A will or trust ensures assets go where you intend and can reduce confusion and conflict after death.

Even couples well below any estate tax threshold often benefit from basic estate planning documents like a will or healthcare directive. These documents control who makes decisions if you become incapacitated and who inherits your assets, regardless of tax. The cost of creating these documents is typically far less than the cost of confusion or family disputes later.

How life insurance factors into estate tax for couples

Life insurance proceeds are included in your taxable estate for federal estate tax purposes. This means a couple with $15 million in assets plus $5 million in life insurance has a $20 million estate, even though the life insurance did not exist until the death. For couples approaching the federal threshold, life insurance can push them over it.

One common strategy is to place life insurance in an irrevocable life insurance trust, or ILIT. This is a trust that owns the policy rather than the individual. If structured correctly, the insurance proceeds are not included in the taxable estate, which can reduce or eliminate estate tax. This strategy is most relevant for couples with substantial assets and significant life insurance.

Couples with moderate assets and life insurance should understand that the insurance will be counted in their estate for tax purposes, but this rarely creates a tax problem unless their total assets are already high. If you have substantial life insurance and substantial assets, it is worth understanding how the two interact.

Frequently Asked Questions

Do I have to file an estate tax return if my spouse dies and we own everything jointly?

If you want to preserve portability—the ability to use your spouse's unused threshold—you must file Form 706, the federal estate tax return, even if no tax is owed. Without this filing, your spouse's unused threshold is lost. If you do not plan to use portability or your combined assets are well below the threshold, filing may not be necessary, but you should confirm this with someone familiar with your situation.

Can we split our assets between us to reduce estate tax?

Splitting assets between spouses does not reduce federal estate tax for married couples because portability lets you use both thresholds anyway. However, splitting assets can matter for state estate tax in some situations, and it may matter for other reasons like creditor protection or control. The strategy depends on your specific state and circumstances.

What if one spouse is not a U.S. citizen?

Non-citizen spouses face different rules. The federal threshold for a non-citizen spouse is much lower—$185,000 in 2024—and portability does not work the same way. Couples in this situation need specialized planning and should consult someone with experience in this area before relying on standard strategies.

Does a prenuptial agreement affect estate tax?

A prenuptial agreement can affect how assets are treated in an estate, but it does not change the federal estate tax threshold or how portability works. However, a prenup might limit what the surviving spouse inherits, which could affect overall estate tax planning. If you have a prenup and substantial assets, make sure your estate plan aligns with it.

What should we do if we think we might owe estate tax?

Start by calculating your combined assets—home, retirement accounts, life insurance, investments, and other property. Compare that total to the current federal threshold and your state's threshold if you live in an estate tax state. If you are close to or above either threshold, review your situation with someone who understands estate tax. They can explain your options and help you decide whether planning makes sense for your situation.