Data Notice: Estate tax figures cited in this article reflect the TCJA extension under the One Big Beautiful Bill signed into law in 2025. Confirm current thresholds with the IRS before making estate planning decisions.

Estate Tax 2026: Exemption Thresholds, Portability, and Planning Strategies

The federal estate tax exemption in 2026 is projected at approximately $14.99 million per individual — ~$29.98 million per married couple using portability. The TCJA’s doubled exemption, which was set to sunset at the end of 2025, was made permanent through the One Big Beautiful Bill (OBBB). While this means fewer than 0.1% of estates owe federal estate tax, state-level estate taxes, income tax on inherited retirement accounts, and the eventual certainty of legislative change make proactive estate planning essential for anyone with a net worth above $5 million.

2026 Federal Estate Tax Basics

The federal estate tax applies to the total fair market value of a deceased person’s assets minus debts, funeral expenses, and the applicable exemption.

Item	2026 Projected
Federal estate tax exemption (individual)	~$14,990,000
Federal estate tax exemption (married, with portability)	~$29,980,000
Top marginal estate tax rate	40%
Gift tax annual exclusion	~$19,000 per recipient
Gift tax lifetime exemption	Unified with estate tax (~$14,990,000)

The estate and gift tax exemptions are unified. Every dollar you use during your lifetime for taxable gifts reduces the amount available at death.

Source: IRS — Estate and Gift Taxes

Portability: Preserving Your Spouse’s Unused Exemption

Portability allows a surviving spouse to use the deceased spouse’s unused estate tax exemption — but only if a federal estate tax return (Form 706) is filed after the first spouse’s death, even if no tax is owed.

Example: Husband dies in 2026 with a $5 million estate. His unused exemption is approximately $9.99 million (~$14.99M - $5M). If Form 706 is filed, the surviving wife can add that ~$9.99 million to her own ~$14.99 million exemption, giving her a total exemption of approximately $24.98 million.

Critical mistake: Many families skip the Form 706 filing because no tax is owed. This permanently forfeits the deceased spouse’s unused exemption. For any married couple with combined assets over $10 million, filing is essential.

The filing deadline is 9 months after death (with a 6-month extension available). There is a simplified late-filing procedure for portability elections made within 5 years of death.

Source: IRS — Estate Tax Returns: Portability Election

State Estate and Inheritance Taxes

Twelve states and the District of Columbia impose their own estate taxes, many with exemptions far below the federal threshold:

State	Estate Tax Exemption	Top Rate
Oregon	~$1,000,000	16%
Massachusetts	~$2,000,000	16%
Minnesota	~$3,000,000	16%
New York	~$6,940,000	16%
Connecticut	~$13,610,000	12%
Illinois	~$4,000,000	16%
Maine	~$6,800,000	12%
Maryland*	~$5,000,000	16%
Vermont	~$5,000,000	16%
Rhode Island	~$1,774,583	16%
Washington	~$2,193,000	20%
Hawaii	~$5,490,000	20%
District of Columbia	~$4,710,880	16%

*Maryland also imposes a separate inheritance tax of up to 10%.

Six additional states impose inheritance taxes (on beneficiaries rather than estates): Iowa (phasing out by 2025), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Key point: A $6 million estate owes zero federal estate tax but could face a $500,000+ state estate tax bill in Oregon, Massachusetts, or Washington.

Source: Tax Foundation — State Estate and Inheritance Taxes 2026

The Step-Up in Basis: The Largest Hidden Tax Break

When assets pass to heirs at death, their cost basis “steps up” to the fair market value at the date of death. This eliminates all unrealized capital gains accumulated during the decedent’s lifetime.

Example: You bought $500,000 of stock that grew to $3,000,000. If you sell, you owe capital gains tax on $2,500,000 of appreciation. If your heirs inherit, their basis is $3,000,000 — the $2,500,000 gain disappears from the tax system.

At a 23.8% combined rate (20% + 3.8% NIIT), the step-up saves approximately $595,000 in this example.

Strategy: Hold highly appreciated assets until death rather than selling or gifting during your lifetime. This is one of the most powerful reasons to maintain a taxable brokerage account alongside tax-deferred retirement accounts.

Source: IRS Topic 703 — Basis of Assets

Gifting Strategies During Your Lifetime

Annual Exclusion Gifts

You can give up to approximately $19,000 per recipient per year (2026) without using any of your lifetime exemption. A married couple can give $38,000 per recipient. For a family with four children and four in-laws, that is up to $304,000/year removed from the estate without any gift tax reporting.

529 Plan Superfunding

You can contribute up to 5 years of annual exclusion gifts at once (~$95,000 per beneficiary, or ~$190,000 per married couple) to a 529 plan. This immediately removes the funds from your taxable estate while allowing you to reclaim the money if needed (though with tax consequences). See 529 College Savings Plans.

Direct Payments for Tuition and Medical

Payments made directly to educational institutions for tuition or to medical providers for medical expenses are unlimited and do not count against your annual exclusion or lifetime exemption. This is a powerful way to transfer wealth while also helping family members.

Irrevocable Trusts

For estates approaching or exceeding the federal exemption, irrevocable trusts remove assets from your taxable estate permanently. Common structures include:

Irrevocable Life Insurance Trust (ILIT): Owns a life insurance policy outside your estate — the death benefit passes to beneficiaries estate-tax-free
Grantor Retained Annuity Trust (GRAT): Transfers appreciation on assets to heirs at reduced or zero gift tax cost
Spousal Lifetime Access Trust (SLAT): Allows one spouse to create an irrevocable trust for the other, removing assets from both estates while maintaining indirect access

These structures require an estate planning attorney and typically involve $500,000+ in assets to justify the setup and maintenance costs.

Income Tax Planning for Heirs

For most families, the income tax impact of inheritance far exceeds any estate tax exposure. The SECURE Act requires most non-spouse beneficiaries to fully distribute inherited Traditional IRA and 401(k) accounts within 10 years. A $1 million inherited IRA distributed over 10 years adds approximately $100,000/year to the heir’s taxable income.

Strategies to reduce heir income tax burden:

Roth conversions during your lifetime — pay income tax now at your rate; heirs inherit tax-free
Spend down Traditional accounts first — preserve taxable brokerage accounts for the step-up in basis
Name charity as IRA beneficiary — charity pays no income tax on distributions; leave taxable and Roth assets to family

For Roth conversion details, see Roth Conversion Ladder.

Key Takeaways

The 2026 federal estate tax exemption is approximately $14.99 million per individual (~$29.98 million married) — but state exemptions can be as low as $1 million
Portability preserves a deceased spouse’s unused exemption, but only if Form 706 is filed — do not skip this step
The step-up in basis eliminates unrealized capital gains at death, making taxable brokerage accounts the most efficient assets to bequeath
Annual exclusion gifts (~$19,000 per recipient), 529 superfunding, and direct tuition/medical payments reduce taxable estates without using the lifetime exemption
Income tax on inherited retirement accounts (10-year SECURE Act rule) affects far more families than estate tax — Roth conversions are the primary defense

Next Steps

Read Estate Planning 101 for foundational estate planning documents
Explore Roth Conversion Ladder Strategy to reduce heir income tax burden
See Tax Planning Strategies for the broader tax reduction playbook
Find an estate planning adviser near you

This content is for educational purposes only and does not constitute financial, tax, or legal advice. Consult a licensed estate planning attorney and tax professional for your specific situation.

Sources

IRS — Estate and Gift Taxes — accessed April 2026
IRS — Tax Inflation Adjustments for 2026 — accessed April 2026
IRS Topic 703 — Basis of Assets — accessed April 2026
Tax Foundation — State Estate and Inheritance Taxes 2026 — accessed April 2026
IRS — Estate Tax Returns and Portability — accessed April 2026