The federal estate tax rate is 40 percent, but it only applies to estates larger than $13.61 million for deaths in 2024

The federal estate tax is a tax on the total value of everything a person owns when they die — their house, investments, bank accounts, business interests, and other property. The tax rate is a flat 40 percent on the amount that exceeds the threshold. For 2024, that threshold (called the exemption) is $13.61 million per person. This means if you die with an estate worth $14 million, only the $390,000 above the threshold is taxed at 40 percent, resulting in a $156,000 tax bill.

The exemption amount changes every year based on inflation. It was $12.92 million in 2023 and will be different in 2025. The IRS publishes the current year's exemption in late October or early November of the prior year. Unless Congress changes the law, the exemption is scheduled to drop to roughly $7 million per person (adjusted for inflation) starting in 2026.

Most people never pay this tax. The exemption is high enough that fewer than 1 in 1,000 estates owe federal estate tax in any given year. However, if you own a business, significant real estate, or a large investment portfolio, your estate could exceed the threshold.

Key Takeaways

  • The federal estate tax rate is 40 percent, but only on the value of an estate above $13.61 million in 2024.
  • The exemption amount increases each year for inflation and is scheduled to drop to about $7 million per person in 2026 unless Congress acts.
  • Your spouse can inherit your unused exemption, potentially doubling the threshold to $27.22 million for married couples in 2024.
  • Some states impose their own estate or inheritance taxes with much lower thresholds, even if your federal estate is not taxed.
  • Planning ahead — such as making gifts during your lifetime or setting up trusts — can reduce or eliminate estate tax for larger estates.

How the exemption works for married couples

If you are married, both spouses have their own $13.61 million exemption in 2024. This means a married couple can pass $27.22 million to their heirs without owing federal estate tax. The catch is that the surviving spouse must file an estate tax return (Form 706) after the first spouse dies and elect to carry forward the unused exemption — this is called portability. Without this election, the surviving spouse loses the first spouse's unused exemption.

Portability is not automatic. Your executor must file Form 706 within nine months of death (or within 15 months if you request an extension) to preserve the exemption. If your estate is below the threshold, you might think you do not need to file — but if you want to preserve your spouse's exemption for later use, you must file anyway. Many people miss this step and inadvertently lose millions in exemption.

State estate and inheritance taxes are separate and often lower

Twelve states and the District of Columbia impose their own estate taxes. These are separate from the federal tax and use their own exemption thresholds, which are much lower. For example, Massachusetts has a $1 million exemption, and New York has a $6.94 million exemption in 2024. If you live in or own property in one of these states, your estate could owe state tax even if it does not owe federal tax.

Six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — impose inheritance taxes instead of estate taxes. The difference is that inheritance tax is paid by the person who receives the money, not by the estate itself. The tax rate and exemptions vary by state and by the relationship between the deceased and the heir. A surviving spouse might pay nothing, while a distant relative could pay 15 percent or more.

If you own real estate or have significant assets in multiple states, you may need to file estate tax returns in more than one state. The rules are complex and vary widely, so consulting a tax professional in your state is important if your estate is substantial.

What counts toward your estate value

Your taxable estate includes nearly everything you own at death: your home, cars, bank accounts, stocks, bonds, retirement accounts, life insurance proceeds, business interests, and valuable personal property like art or jewelry. It also includes certain gifts you made during your lifetime if they exceeded the annual gift tax exclusion (which is $18,000 per recipient in 2024).

Some things do not count. Money left to a surviving spouse is not taxed, thanks to the marital deduction. Gifts to charities are also excluded. Life insurance proceeds are normally included in your estate value, but if the policy is owned by an irrevocable trust rather than by you personally, the proceeds can be kept out of the taxable estate.

Valuing an estate can be complicated. Real estate is usually valued at fair market value on the date of death. Closely held business interests are harder to value and often require a professional appraisal. Retirement accounts like IRAs and 401(k)s are included at their account balance, and the beneficiary will owe income tax when they withdraw the money — so the true tax burden is often higher than the estate tax alone.

How the 40 percent tax is calculated

The estate tax is not a straightforward 40 percent of everything. It is 40 percent only of the amount above the exemption. Here is how it works: add up the total value of the estate, subtract the $13.61 million exemption (or the applicable exemption for your situation), and multiply the remainder by 0.40.

Example: An estate worth $15 million in 2024 would owe tax on $1.39 million ($15 million minus $13.61 million). The tax would be $556,000 ($1.39 million times 40 percent). The estate pays this tax before distributing money to heirs, which reduces what the heirs receive.

The executor of the estate is responsible for filing Form 706 (the federal estate tax return) and paying the tax. The return is due nine months after death, though an extension can be requested. If the estate does not have enough liquid cash to pay the tax, the executor may need to sell assets — which can be complicated if the estate includes a family business or real estate that is difficult to sell quickly.

Planning strategies to reduce or avoid estate tax

If your estate is close to or above the exemption threshold, several strategies can reduce the tax burden. Lifetime gifts are one option: you can give up to $18,000 per person per year (in 2024) without using any of your exemption. Over time, this removes assets from your taxable estate. Gifts above this amount use your exemption, but they do not trigger a tax — they straightforward reduce the exemption available at death.

A revocable living trust does not reduce estate tax, but it can simplify the process of transferring assets to heirs and avoid probate. An irrevocable life insurance trust (ILIT) can keep life insurance proceeds out of your taxable estate. A charitable remainder trust allows you to make a gift to charity while receiving income during your lifetime, and the gift reduces your taxable estate.

These strategies vary in complexity and cost. Some require ongoing administration. A tax professional or estate planning attorney can help you understand which approaches make sense for your situation and your goals.

The exemption is scheduled to change in 2026

The current high exemption ($13.61 million in 2024) is temporary. It was set by the Tax Cuts and Jobs Act of 2017 and is scheduled to expire on December 31, 2025. Starting January 1, 2026, the exemption will drop to approximately $7 million per person (adjusted for inflation), unless Congress extends or modifies the law before then.

This means estates that are safe from federal tax today could owe significant tax after 2025 if the exemption drops as scheduled. If your estate is between $7 million and $13.61 million, you may want to consider planning strategies now — such as making large gifts or setting up trusts — to take advantage of the higher exemption while it lasts. Congress could change this timeline, but it is unwise to assume that will happen.

Frequently Asked Questions

Do I owe estate tax if my estate is below the exemption?

No. If your total estate is below $13.61 million in 2024, you owe no federal estate tax. However, if you are married and want to preserve your spouse's unused exemption for later use, your executor should still file Form 706 to make the portability election. Some states also impose estate tax at lower thresholds, so check your state's rules.

Can I reduce my estate tax by giving money away before I die?

Yes. Gifts of up to $18,000 per person per year (in 2024) do not use your exemption. Larger gifts use your exemption but do not trigger a tax. Over time, giving away assets reduces what is in your taxable estate at death. A tax professional can help you plan a gifting strategy that fits your goals.

What happens if I die without a will?

Your estate still owes federal estate tax if it exceeds the exemption, regardless of whether you have a will. However, without a will, your state's intestacy laws determine who inherits, which can lead to conflict and higher legal costs. A will does not reduce estate tax, but it ensures your assets go where you want them to go.

Is life insurance included in my taxable estate?

Yes, normally. Life insurance proceeds are included in your taxable estate at their full face value. However, if the policy is owned by an irrevocable trust rather than by you personally, the proceeds can be excluded from your estate. This requires setting up the trust before you buy the policy or transferring an existing policy to the trust more than three years before death.

What if my estate is worth $13.5 million — do I still need to file Form 706?

If your estate is below the exemption and you are not married (or your spouse has no unused exemption to preserve), you do not need to file. However, if you are married and want to preserve your spouse's exemption through portability, you must file Form 706 even though no tax is owed. Failing to file costs you millions in lost exemption.