You’ve heard that the only things that are certain in life are death and taxes. And sometimes they seem to come at you at the same time in the form of the estate tax, which is sometimes referred to as the “death tax.”
The federal estate tax is levied on the total fair market value of a person’s assets upon death before anything can be transferred to heirs. Some states also have their own estate tax.
Fortunately, many Americans won’t owe an estate tax because of the high gift and estate tax exemption set by the Tax Cuts and Jobs Act (TCJA) in 2017. And after years of uncertainty, the One Big Beautiful Bill Act (OBBB) made it permanent.
How Does the Estate Tax Work?
Estate taxes, both at the federal and state level, are paid from the total fair market value of your assets upon death before they can be distributed to beneficiaries.Federal estate tax rates range from 18 percent to 40 percent. The actual rate would depend on how much the value of your estate exceeds the lifetime gift and estate tax exemption (more on that later).
- cash
- real estate
- banking accounts
- investment accounts
- retirement plans
- annuities
- vehicles
- jewelry
- clothing
- other personal items
Lifetime Gift and Estate Tax Exemption
For 2026, the federal estate tax only applies to an individual’s assets valued at more than $15 million, or a married couple’s assets valued at $30 million.Take Advantage of the Annual Gift Tax Exclusion Limit
In 2026, individuals can make gifts of up to $19,000 to any individual without having to pay gift taxes or file gift tax returns. This is known as the annual gift tax exclusion limit. And making gifts up to this limit could over time reduce the size of your estate. So it could help you minimize or avoid the estate tax down the road.But if you make a gift to anyone that exceeds the annual gift tax exclusion ($19,000 in 2026), you’d need to file a gift tax return or IRS form 709. In addition, it would also reduce your lifetime gift and estate tax exemption, so it may put you at risk of the estate tax later. It’s important to stay within the annual gift tax exclusion limits each year.
Moreover, it’s important to note that if you pass on your estate to your spouse, you may avoid the estate tax altogether due to the unlimited marital deduction. This allows for the unrestricted and tax-free transfer of assets between spouses in life or after death. The receiving spouse, however, must be a U.S. citizen.
Strategically Give to Charity
Making donations to IRS-approved charities generally allows you to take an immediate tax deduction. And these gifts would also be deducted from your gross estate. This way, you can engage in savvy estate planning while also supporting the causes you care deeply about.Establish an Irrevocable Living Trust
With the help of an estate-planning attorney, you can set up an irrevocable living trust for the benefit of your heirs. You can transfer all sorts of assets to these trusts, including cash, investments, and real estate. But irrevocable means you’d permanently relinquish ownership of these assets. They would belong to the trust. And you generally can’t take the assets back or make any changes to the trust once it has been established without the permission of the beneficiaries or a court order.State-Specific Estate Taxes
Twelve states and the District of Columbia levy their own estate taxes, which may apply to you in addition to the federal estate tax.And here is where it can get tricky: The exemption limits vary by state. So you may owe a state-specific estate tax even if you don’t owe any federal estate tax. This would overall depend on the state in which you resided upon death.
- Connecticut: $15 million
- Hawaii: $5.49 million
- Illinois: $4 million
- Maine: $6.8 million
- Maryland: $5 million
- Massachusetts: $2 million
- Minnesota: $3 million
- New York: $7.35 million
- Oregon: $1 million
- Rhode Island: $1.838 million
- Vermont: $5 million
- Washington: $3 million
- District of Columbia: $4.99 million
But as tax laws are constantly changing, it’s important to check the official website for your state’s department of taxation and revenue for the latest updates.
The Bottom Line
Estate taxes may be levied on your assets upon death, and the rate can be as high as 40 percent. But most people won’t face the estate tax because of the high lifetime gift and estate tax exemption. But if you’re concerned that your estate will breach these levels, there are many estate-planning strategies you can engage in today to help you minimize or avoid the estate tax. It’s best to approach these strategies with the help of an experienced estate-planning attorney.The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.
From The Epoch Times