The Federal Estate Tax

The estate tax is a tax on large estates levied at death, thus earning the moniker “the death tax.” The estate tax has gone through many changes and revisions since its first modern implementation in 1916. Under the current scheme — set by the One Big Beautiful Bill Act signed in July 2025 and the IRS’s 2026 inflation adjustments — the basic exclusion amount is $15,000,000 per individual for decedents who die in 2026 (up from $13,990,000 for 2025). A married couple can therefore shield a combined $30,000,000 from the federal estate tax, and the exclusion is now indexed to inflation on a permanent basis with 2025 as the base year.

Gross Estate

The gross estate includes all the assets owned by the decedent at death plus some additional property. For example, property owned by the decedent’s living trust, the value of certain property transferred within three years of death, and the proceeds from certain types of life insurance policies are included in the gross estate despite the decedent’s not actually owning them at death. Determining what is and is not included in the gross estate can be a highly complex and nuanced endeavor.

It is important to note that the value of the gross estate is determined by the fair market value of the assets held therein. It is not limited to liquid assets but extends to nearly every aspect of the estate, including the value of land, a family business or farm, and even art and furniture.

Taxable Estate

Once the gross estate is determined, as with the income tax, federal law allows for various deductions to lower the value of the taxable estate. Property left to a surviving spouse, for example, is generally not subject to the estate tax. Other deductions include bequeaths to charity and certain expenses that the estate may incur after the decedent’s death, including funeral costs and the cost of administering the estate.

Tentative and Final Estate Tax

From the taxable estate, the tentative estate tax due is determined. As with the income tax, there are several tax tables ranging from 18% to 40%, with any taxable amounts above $1,000,000 subject to the top 40% rate.

Once the tentative tax is determined, credits against the estate tax due are available, the most important of which is the unified credit. The unified credit corresponds directly to the basic exclusion amount — under the IRC § 2001 rate schedule, the $15 million 2026 exclusion translates to a unified credit of approximately $5.95 million in tax (computed as the tax that would otherwise be due on the first $15 million of taxable estate). This represents a unified estate and gift tax credit, meaning the credit amount may be less if the decedent previously used it to make taxable gifts during life. (See my post on the gift tax for the lifetime/annual exclusion mechanics.)

The unified credit is also portable between spouses: a surviving spouse can claim the deceased spouse’s unused exclusion amount (the “DSUE”), often allowing widowed spouses to shield the combined exemptions of both spouses without needing to use a credit-shelter trust.

Controversy

The estate tax remains controversial. Proponents view it as a check on the perpetual concentration of vast wealth in a small number of families. Opponents argue that the same wealth has already been taxed at least once during life — through income, payroll, capital-gains, and corporate taxation — and that taxing it again at death is unfair double or triple taxation.

Policy has shifted significantly over the years. The estate tax was briefly eliminated in 2010, restored at $5 million / 35% in the 2010 tax act, doubled to roughly $11 million by the Tax Cuts and Jobs Act of 2017, and made permanent at the rounded $15 million figure in the One Big Beautiful Bill Act of July 2025 (with the base year reset to 2025 for future inflation indexing).

If the estate tax is a potential concern for your estate, you should consult an attorney to plan accordingly. Many techniques — lifetime gifting, irrevocable life-insurance trusts, GRATs, charitable remainder trusts, and family limited partnerships, among others — can lower or even eliminate the eventual estate tax bill.

Disclaimer: This post is for informational purposes only and is not legal or tax advice. Federal estate-tax exclusion amounts and rules change with new legislation and annual inflation adjustments — consult a qualified attorney or tax professional about your specific situation.