What the federal estate tax is and when it applies to property

The federal estate tax is a tax on the total value of everything a person owns when they die — including real estate, investments, bank accounts, and personal property. It applies only to estates above a certain dollar threshold. For deaths in 2024, that threshold is $13.61 million per person. Estates below that amount owe no federal estate tax, regardless of what they contain.

The threshold changes each year based on inflation. It was lower in previous years and will be lower again after 2025 unless Congress acts. If your estate is below the threshold when you die, your property passes to your heirs without federal estate tax, even if the property itself is valuable.

State-level estate taxes and inheritance taxes exist separately and have their own thresholds, which are often much lower than the federal threshold. Some states tax estates above $1 million or $2 million. Your state's rules do not depend on the federal threshold.

Key Takeaways

  • Federal estate tax only applies to estates worth more than $13.61 million in 2024, a threshold that changes yearly and is scheduled to drop after 2025.
  • Married couples can combine their thresholds through portability, allowing up to $27.22 million in 2024 before federal estate tax applies.
  • Lifetime gifts, trusts, and charitable donations can reduce the size of an estate below the taxable threshold.
  • State estate taxes and inheritance taxes have separate, often lower thresholds and are not affected by federal rules.
  • Property that passes to a surviving spouse or to charity generally does not count toward the federal estate tax threshold.

How married couples can use portability to avoid federal estate tax

Portability allows a married couple to combine their individual thresholds. If one spouse dies and does not use their full threshold, the surviving spouse can use the unused amount in addition to their own. This effectively doubles the threshold for married couples.

In 2024, a married couple can pass up to $27.22 million to their heirs before federal estate tax applies. If the first spouse to die has an estate of $5 million and does not use their full $13.61 million threshold, the surviving spouse can pass $13.61 million plus the unused $8.61 million — a total of $22.22 million — before tax applies.

Portability requires the executor of the first spouse's estate to file a federal estate tax return (Form 706) even if no tax is owed. This return preserves the unused threshold for the surviving spouse. Without this filing, the unused amount is lost. The return must be filed within nine months of death, though an extension can be requested.

Lifetime gifts and the annual exclusion

You can give money or property to other people during your lifetime without triggering federal gift tax or using your estate tax threshold. The annual exclusion allows you to give up to a set amount per person per year tax-free. For 2024, that amount is $18,000 per recipient.

If you give more than $18,000 to one person in a single year, the excess counts against your lifetime threshold — the same threshold that applies to your estate at death. This does not mean you owe tax when ready; it means that amount is subtracted from the $13.61 million you can pass at death without federal estate tax.

Married couples can each give $18,000 to the same person in the same year, for a combined $36,000 annual exclusion. Gifts to spouses and to charities do not count against the annual exclusion or the lifetime threshold at all.

Trusts and how they can reduce taxable estate value

A revocable living trust does not reduce your taxable estate. It avoids probate and keeps your property private, but the full value of property in the trust still counts toward your estate tax threshold at death. A revocable trust is useful for other reasons, but not for federal estate tax reduction.

Irrevocable trusts can remove property from your taxable estate, but only if you give up control of that property. Once you place property in an irrevocable trust, you cannot change the terms, take the property back, or benefit from it yourself. The property no longer belongs to you for tax purposes, so it does not count toward your estate tax threshold when you die.

Common irrevocable trusts include an Irrevocable Life Insurance Trust (ILIT), which holds a life insurance policy outside your estate, and a may have access to Personal Residence Trust (QPRT), which lets you live in a home for a set number of years before it passes to heirs. Both reduce the value of your taxable estate, but both require you to give up ownership rights.

Charitable donations and the unlimited charitable deduction

Property donated to a may have access to charity does not count toward your federal estate tax threshold. There is no limit to how much you can leave to charity without triggering estate tax. This is called the unlimited charitable deduction.

A Charitable Remainder Trust (CRT) lets you donate property to charity while receiving income from that property during your lifetime. When you die, the remaining value goes to the charity. The value that eventually reaches the charity does not count toward your estate tax threshold, which reduces your taxable estate.

A Donor-Advised Fund (DAF) is another option. You donate money or property to the fund, receive a tax deduction in the year of donation, and then recommend grants to charities over time. The donated amount leaves your taxable estate when ready, even though you direct where it goes later.

The scheduled threshold drop in 2026 and planning ahead

The current $13.61 million threshold is set to expire on December 31, 2025. Starting January 1, 2026, the threshold is scheduled to drop to approximately $7 million per person (adjusted for inflation), unless Congress extends or changes the current law. This would cut the threshold roughly in half.

If your estate is between $7 million and $13.61 million, you may want to plan before 2026. Some people use their full current threshold through lifetime gifts or irrevocable trusts while the threshold is high. Others wait to see whether Congress acts. There is no single right answer — it depends on your specific situation and your goals.

Congress has extended this threshold before. It is possible it will do so again, but that is not certain. Consulting with an estate planning attorney or tax professional can help you understand how the current rules explore to your property and what changes might affect your situation.

State estate taxes and inheritance taxes

Seventeen states and the District of Columbia have their own estate taxes, separate from the federal tax. State estate tax thresholds range from $1 million to $5.85 million, depending on the state. Some states tax estates above $1 million; others do not tax until $5 million or higher.

Twelve states have inheritance taxes instead of (or in addition to) estate taxes. An inheritance tax is paid by the person who receives the property, not by the estate itself. Rates and exemptions vary by state and by the relationship between the deceased and the heir — spouses and children often pay nothing, while more distant relatives or unrelated people may owe tax.

If you own property in multiple states, you may owe estate or inheritance tax in more than one state. The state where real estate is located can tax that property even if you live elsewhere. Understanding your state's rules is separate from understanding federal rules.

Frequently Asked Questions

Do I need to do anything now to avoid federal estate tax if my estate is below the threshold?

If your estate is currently below $13.61 million, you do not need to take action specifically to avoid federal estate tax. However, if you are married and want to preserve portability for your spouse, your executor will need to file a federal estate tax return (Form 706) after you die, even though no tax is owed. This is worth mentioning in your will or to your executor.

If I give away property now, do I lose control of it?

That depends on the type of gift. Gifts under the annual exclusion ($18,000 per person in 2024) can be made to anyone, and you can give the money or property outright — the recipient owns it completely. Irrevocable trusts do require you to give up control. Revocable trusts let you keep control and change terms anytime, but they do not reduce your taxable estate.

What happens if I die before the threshold drops in 2026?

The threshold that applies is the one in effect when you die. If you die in 2024 or 2025, the $13.61 million threshold applies. If you die in 2026 or later, the lower threshold applies — unless Congress changes the law before then.

Can I reduce my state estate tax the same way I reduce federal estate tax?

Some strategies overlap, but state rules vary widely. Charitable donations reduce both federal and state taxable estates in most states. Portability works for federal tax but not all states recognize it. Trusts and lifetime gifts may be treated differently under state law. You need to understand your specific state's rules, which an estate planning attorney in your state can explain.