Financial Basics · Tax Concepts

Estate Tax

Definition

The federal estate tax applies to assets transferred at death above the exemption amount. In 2026, the basic exclusion amount is $15M per person under current federal law. Assets below the exemption generally transfer free of federal estate tax and receive a step-up in cost basis.

Why it matters in retirement

Fewer than 0.1% of estates owe federal estate tax — but the step-up in basis affects everyone. For most retirees, the biggest estate-planning decision isn't taxes, it's beneficiary designations and whether to use trusts to simplify inheritance and protect assets.

Key Numbers: 2026

Federal exemption (2026)
$15M
Portability
Election required
Top federal rate
40%
State estate tax states
12 + DC

Pros

  • Step-up in basis eliminates capital gains at death
  • Exemption portable between spouses
  • Charitable bequests fully deductible

Cons

  • State estate tax thresholds can be much lower
  • Future law can change exemption amounts
  • Trust planning adds complexity
  • Portability must be elected

Common mistakes

  • Skipping portability election at first spouse's death
  • Ignoring state estate tax in states like MA, OR, NY
  • Leaving IRAs to an estate instead of named beneficiaries
  • Assuming the federal exemption will always be this high

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