Estate Tax Calculator

How Estate Taxes Work

The federal estate tax in the United States applies to the transfer of a deceased person's assets to their heirs. When someone passes away, their total estate value is tallied — including real estate, investments, bank accounts, retirement funds, life insurance proceeds, and personal property. From this gross estate, allowable deductions are subtracted: outstanding debts, funeral expenses, administrative costs, and charitable donations. The remaining amount is compared against the federal exemption threshold. For 2025, the exemption is $13.61 million per individual, meaning estates below this value owe zero federal estate tax. Amounts exceeding the exemption are taxed at a flat 40% rate. Married couples can effectively double the exemption through portability, where the surviving spouse claims the unused portion of the deceased spouse's exemption. The unlimited marital deduction also allows assets to pass to a surviving spouse completely tax-free, deferring any estate tax until the second spouse's death.

The 2026 TCJA Sunset

The Tax Cuts and Jobs Act of 2017 roughly doubled the federal estate tax exemption from approximately $5.5 million to over $11 million per individual, indexed for inflation. This provision is scheduled to expire, or "sunset," on January 1, 2026. When it does, the exemption is projected to drop back to approximately $7 million (the pre-TCJA level adjusted for inflation). This change could affect thousands of estates that currently fall below the exemption threshold. For example, an estate worth $10 million would owe zero federal tax in 2025 but could face roughly $1.2 million in tax in 2026. Estate planning attorneys widely recommend that individuals with estates between $7 million and $14 million take action before the sunset — strategies include making lifetime gifts, funding irrevocable trusts, and accelerating wealth transfers while the higher exemption is still available. Congress could act to extend the current exemption, but as of now, the sunset is the law.

State Estate and Inheritance Taxes

Beyond the federal estate tax, 17 states and the District of Columbia impose their own estate or inheritance taxes, often with significantly lower exemption thresholds. Massachusetts and Oregon have the lowest estate tax exemptions at $1 million and $2 million respectively, meaning many middle-class families are affected. Maryland is unique in imposing both an estate tax and an inheritance tax. Estate taxes are levied on the overall estate value, while inheritance taxes are paid by individual beneficiaries based on their relationship to the deceased. Spouses are generally exempt from inheritance tax in all states. Children may face rates of 0% to 4.5%, while siblings and non-relatives can face rates as high as 18%. Proper planning — including the use of trusts, beneficiary designations, and lifetime gifts — can substantially reduce or eliminate state-level taxes. The UK applies inheritance tax at 40% on estates exceeding a 325,000 GBP nil-rate band, with additional relief when a main residence is passed to direct descendants. Canada and Australia do not impose estate or inheritance taxes, though capital gains tax events triggered at death can result in significant tax liabilities.

Strategies to Reduce Estate Taxes

Several legal strategies can help minimize estate tax liability. Lifetime gifting allows individuals to give up to $18,000 per person per year (2025 limit) without affecting their lifetime exemption. Irrevocable life insurance trusts (ILITs) remove life insurance proceeds from the taxable estate. Charitable remainder trusts provide income during life while reducing the estate and supporting a charitable cause. Grantor retained annuity trusts (GRATs) can transfer asset appreciation to heirs with minimal or no gift tax. Family limited partnerships allow discounted transfers of business interests. For married couples, credit shelter trusts (bypass trusts) ensure both spouses' exemptions are fully utilized. Spousal lifetime access trusts (SLATs) have become especially popular before the 2026 sunset — they allow one spouse to gift assets into an irrevocable trust while the other spouse retains access as a beneficiary. Working with an estate planning attorney and tax professional is essential, as these strategies involve complex rules and potential pitfalls.