Data Notice: Estate and inheritance tax exemptions and rates cited here are projected 2026 figures. The federal estate tax exemption is inflation-adjusted annually and faces a scheduled reduction after 2025 under prior law, potentially modified by recent legislation. Verify with IRS.gov. Specific to Guide tax provisions discussed in this article.

Estate and Inheritance Tax Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

The 2026 federal estate tax exemption is ~~$15,000,000 per individual (~~$30,000,000 for married couples with portability), with a top tax rate of 40% on amounts above the exemption. The One Big Beautiful Bill Act made this higher exemption permanent, eliminating the previously scheduled TCJA sunset. The annual gift tax exclusion is ~$19,000 per recipient. This guide covers federal estate tax calculations, the 12 states plus D.C. that impose their own estate taxes, the 6 states with inheritance taxes, and strategies to minimize both.

Federal Estate Tax: The Basics

The federal estate tax applies to the transfer of property at death. It is paid by the estate, not the heirs.

2026 Key Numbers

Item	2026 Amount
Estate tax exemption (individual)	~$15,000,000
Estate tax exemption (married couple, with portability)	~$30,000,000
Top estate tax rate	40%
Annual gift tax exclusion	~$19,000 per recipient
Lifetime gift tax exemption	Unified with estate exemption

The One Big Beautiful Bill Act made the increased estate tax exemption permanent, eliminating the previously scheduled TCJA sunset.

How It Works

Calculate the gross estate (all assets at fair market value at death)
Subtract allowable deductions (debts, funeral expenses, charitable bequests, marital deduction)
The result is the taxable estate
Apply the estate tax exemption
Tax the remainder at graduated rates up to 40%

Example: A single person dies in 2026 with a $18 million estate. After the ~$15 million exemption, ~$3 million is taxable at rates up to 40%, resulting in approximately ~$1,098,000 in estate tax.

What Is Included in Your Estate?

The gross estate includes more than most people expect:

Asset	Included?
Home and real estate	Yes, at fair market value
Bank and investment accounts	Yes
Retirement accounts (IRA, 401k)	Yes
Life insurance death benefit	Yes, if you own the policy
Business interests	Yes
Vehicles, jewelry, collectibles	Yes
Jointly owned property	Partially (based on ownership percentage)
Revocable trust assets	Yes
Irrevocable trust assets	Generally no

Estate Tax vs. Inheritance Tax

These are different taxes:

Feature	Estate Tax	Inheritance Tax
Who pays	The estate	The heir
Federal level	Yes (40% top rate)	No
State level	Some states	Some states
Based on	Total estate value	Amount each heir receives

States with Estate Taxes (2026)

Approximately 12 states and DC impose their own estate tax with lower exemption thresholds:

State	Exemption	Top Rate
Connecticut	~$15 million	12%
District of Columbia	~$4.71 million	16%
Hawaii	~$5.49 million	20%
Illinois	~$4 million	16%
Maine	~$6.8 million	12%
Maryland	~$5 million	16%
Massachusetts	~$2 million	16%
Minnesota	~$3 million	16%
New York	~$7.16 million	16%
Oregon	~$1 million	16%
Rhode Island	~$1.77 million	16%
Vermont	~$5 million	16%
Washington	~$2.193 million	20%

States with Inheritance Taxes (2026)

Six states impose inheritance taxes (rates vary by relationship to the deceased):

State	Spouse Exempt?	Top Rate
Iowa	Yes	Phasing out
Kentucky	Yes	16%
Maryland	Yes	10%
Nebraska	Yes	18%
New Jersey	Yes	16%
Pennsylvania	Yes	15%

Maryland is the only state with both an estate tax and an inheritance tax.

See State Income Tax Comparison: All 50 States Ranked for broader state tax analysis.

The Gift Tax and Lifetime Exemption

The gift tax prevents people from avoiding estate taxes by giving away assets during their lifetime. The gift tax exemption is unified with the estate tax exemption.

Annual Gift Tax Exclusion

You can give up to $19,000 per recipient per year (2026) without using any of your lifetime exemption. For a married couple, that is $38,000 per recipient per year.

Lifetime Gift Tax Exemption

Gifts above the annual exclusion count against your lifetime exemption (unified with the estate tax exemption of approximately ~$15 million in 2026). You do not owe gift tax until you have used up the full exemption.

Gifts That Do Not Count

Tuition paid directly to an educational institution (unlimited)
Medical expenses paid directly to a provider (unlimited)
Gifts to a spouse (unlimited marital deduction)
Gifts to qualified charities

Step-Up in Basis

One of the most important tax benefits in estate planning:

When you inherit an asset, your cost basis is “stepped up” to the fair market value at the date of death. This eliminates all unrealized capital gains.

Example: Your parent bought stock for $50,000. At death, it is worth $500,000. You inherit it with a $500,000 basis. If you sell immediately, you owe $0 in capital gains tax.

This makes holding appreciated assets until death — rather than selling or gifting during life — a powerful tax strategy.

See Capital Gains Tax Guide: Short-Term vs Long-Term Strategies for more on basis and capital gains.

Estate Planning Strategies

1. Use the Annual Gift Exclusion

Give $19,000 per person per year to reduce your taxable estate. A couple with three children and three children’s spouses can transfer $228,000 per year ($38,000 x 6 recipients) with no tax consequences.

2. Irrevocable Life Insurance Trust (ILIT)

Transfer life insurance policies to an ILIT to remove the death benefit from your taxable estate. The trust owns the policy, so the proceeds are not included in your estate.

3. Qualified Personal Residence Trust (QPRT)

Transfer your home to a trust while retaining the right to live there for a term of years. At the end of the term, the home passes to beneficiaries at a discounted gift value.

4. Charitable Remainder Trust (CRT)

Donate appreciated assets to a CRT, receive income for a term of years, and pass the remainder to charity. Provides a current income tax deduction and removes assets from your estate.

5. Spousal Portability

If the first spouse to die does not use their full estate tax exemption, the unused portion can transfer to the surviving spouse — but you must file an estate tax return (Form 706) to elect portability.

6. Dynasty Trusts

In states that allow them, dynasty trusts can hold assets for multiple generations without triggering estate tax at each generational transfer.

7. Strategic Lifetime Gifting

The permanently elevated estate tax exemption of ~$15 million provides substantial room for tax-free transfers. Use the annual exclusion and lifetime exemption strategically to shift wealth to the next generation while reducing your taxable estate.

Generation-Skipping Transfer Tax (GST)

The GST tax prevents wealthy families from avoiding estate tax by skipping a generation (transferring directly to grandchildren). The GST exemption is the same as the estate tax exemption (~$15 million in 2026), and the rate is a flat 40%.

When to Start Estate Planning

Estate Size	Priority Level	Key Actions
Under $1 million	Basic	Will, beneficiary designations, POA
$1M – $5M	Moderate	Will, trust, review state tax exposure, annual gifting
$5M – $15M	High	Advanced trusts, gifting strategy, life insurance review
Over $15M	Critical	Full estate plan, ILIT, CRTs, dynasty trust, professional team

Key Takeaways

The federal estate tax exemption is approximately ~$15 million per person in 2026, made permanent by the One Big Beautiful Bill Act
Only about 0.1% of estates owe federal estate tax, but state-level taxes have much lower thresholds
The step-up in basis at death eliminates unrealized capital gains on inherited assets
Annual gifting (~$19,000 per recipient) is a simple and effective way to reduce your taxable estate
Irrevocable trusts, life insurance trusts, and charitable trusts offer advanced planning opportunities
Spousal portability must be elected on a timely filed Form 706

Next Steps

Review your state’s estate and inheritance tax rules — State Income Tax Comparison: All 50 States Ranked
Understand basis rules with the Capital Gains Tax Guide: Short-Term vs Long-Term Strategies
Build your planning team — Find a CPA Near You or Hire a Tax Professional
Get organized with the Tax Document Checklist (Downloadable PDF)
Schedule a consultation — Tax Planning Consultation

Sources

Estate and Gift Taxes — Internal Revenue Service — accessed March 26, 2026
IRS releases tax inflation adjustments for tax year 2026 — IRS — accessed March 26, 2026