Financial Basics · Tax Concepts

Estate Tax

Definition

The federal estate tax applies to assets transferred at death above the exemption amount. In 2026, the exemption is $13.99M per person ($27.98M per couple). Assets below the exemption transfer tax-free to heirs 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)
$13.99M
Couple exemption
$27.98M
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 much lower (MA: $2M)
  • Exemption scheduled to sunset
  • 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

Related

Want help applying this to your situation?

Take the free Retire Ready Score to see where you stand.

Take the Free Assessment →