Question 1

What is the federal estate tax exemption in 2026?

Accepted Answer

The federal estate tax exemption for 2026 is $15,000,000 per person under the One Big Beautiful Bill (OBBB, P.L. 119-21, signed July 4, 2025). Without OBBB, the TCJA exemption would have sunsetted to approximately $7 million in 2026. OBBB raised and made the exemption permanent, fully indexed for inflation. Married couples can effectively shelter $30M via portability. Source: IRS Publication 559, irs.gov/estate-gift-tax.

Question 2

What is the federal estate tax rate in 2026?

Accepted Answer

The top federal estate tax rate is 40% on the taxable estate above the exemption. The rate structure is graduated (18%–40%) but in practice, almost all taxable estates owe the top 40% rate because the lower rates apply to amounts well below the exemption threshold. State estate taxes are separate and may have lower exemptions (some as low as $1M). Source: IRS Form 706.

Question 3

What would the estate tax exemption have been without OBBB?

Accepted Answer

Without OBBB, the TCJA's elevated exemption would have expired December 31, 2025. For 2026, the exemption would have reverted to approximately $7 million per person (indexed from the pre-TCJA $5 million base). Estates between $7M and $15M that were previously exempt would have faced 40% federal tax on the excess. OBBB prevented this cliff.

Question 4

What is the gift tax annual exclusion in 2026?

Accepted Answer

The annual gift tax exclusion for 2026 is $19,000 per recipient (inflation-adjusted under OBBB). Gifts within this annual exclusion do not count against the $15M lifetime exemption and do not require filing Form 709. Married couples can combine exclusions for $38,000 per recipient per year via gift-splitting. Source: IRS Publication 559, IRC §2503(b).

Question 5

How does estate tax portability work under OBBB?

Accepted Answer

Portability allows a surviving spouse to use the deceased spouse's unused estate tax exemption (DSUE). Under OBBB, with $15M exemption per person, a married couple can effectively shelter $30M. The executor must elect portability on Form 706 within 9 months of death (extended to 5 years with automatic extension if no estate tax return was otherwise required). Source: IRS Form 706, IRC §2010(c).

Question 6

Are there state estate taxes in addition to federal?

Accepted Answer

Yes. 12 states and Washington DC impose their own estate taxes with lower exemptions: Massachusetts and Oregon have $1M exemptions; Washington State has $2.193M; Illinois has $4M; New York has $7.16M. State rates vary up to 20%. If you live in or own real property in these states, factor in state estate tax separately — it is not offset by the federal exemption.

Question 7

What deductions reduce the gross estate?

Accepted Answer

Key deductions from the gross estate: (1) Marital deduction — 100% of assets passing to a US citizen spouse; (2) Charitable bequest deduction — 100% of assets passing to qualifying charities; (3) Debts and mortgages — outstanding liabilities of the decedent; (4) Funeral and administration expenses; (5) Casualty losses during estate administration. Source: IRS Form 706, IRS Publication 559.

Question 8

How does stepped-up basis interact with estate tax planning?

Accepted Answer

When heirs inherit assets, the cost basis is stepped up to fair market value at death (IRC §1014). This eliminates embedded capital gains tax — heirs can sell immediately with no capital gains. The estate tax exemption ($15M under OBBB) and the step-up in basis together create a powerful planning combination for wealthy families. Gifts made during lifetime do NOT receive a step-up in basis.

Question 9

When must Form 706 (estate tax return) be filed?

Accepted Answer

IRS Form 706 must be filed within 9 months of the decedent's death (plus a 6-month automatic extension if requested before the due date). Filing is required if the gross estate plus adjusted taxable gifts exceeds $15M in 2026. Even if no tax is owed (e.g., all assets pass to a spouse via marital deduction), filing is required to elect portability of the unused exemption. Source: IRS Form 706 instructions.

Question 10

What is the generation-skipping transfer (GST) tax?

Accepted Answer

The generation-skipping transfer (GST) tax applies to transfers to grandchildren or more remote descendants, skipping a generation. The GST tax exemption in 2026 is also $15M per person (same as the estate tax exemption under OBBB). Transfers above this amount face an additional 40% GST tax on top of estate or gift tax. This prevents families from avoiding estate tax by skipping generations. Source: IRS Form 709, IRC §2601.

Question 11

What happens to prior taxable gifts over the annual exclusion?

Accepted Answer

Prior taxable gifts (gifts above the annual exclusion, reported on Form 709) reduce your available estate tax exemption dollar for dollar at death. They are 'adjusted taxable gifts' added back to the taxable estate when computing estate tax. However, gift tax paid on gifts made more than 3 years before death is NOT added back — making large early gifts advantageous for removing future appreciation from the estate.

Question 12

Can I use life insurance to pay estate taxes?

Accepted Answer

Yes, but not directly. Life insurance proceeds are included in your gross estate if you own the policy (IRC §2042). To keep life insurance out of your estate, transfer ownership to an Irrevocable Life Insurance Trust (ILIT) at least 3 years before death. The trust owns the policy; proceeds pay estate taxes without being included in your estate. ILIT is one of the most common estate planning tools for high-net-worth individuals.

Question 13

What is a QPRT and how does it reduce estate tax?

Accepted Answer

A Qualified Personal Residence Trust (QPRT) transfers your home to an irrevocable trust while you retain the right to live there for a fixed term. The gift tax value is discounted (lower interest rate + retained interest = smaller taxable gift). When the term ends, the home passes to heirs. If you die during the term, the home is fully included in your estate. Best used when AFR rates are low and life expectancy is well beyond the term.

Question 14

What is the GRAT strategy for estate tax reduction?

Accepted Answer

A Grantor Retained Annuity Trust (GRAT) transfers assets to a trust while you receive fixed annuity payments for a set term. If the assets grow faster than the IRS hurdle rate (§7520 rate), the excess passes to heirs estate-tax-free. GRATs are especially powerful when §7520 rates are low and assets are likely to appreciate significantly. Zeroed-out GRATs with short terms are a common strategy to pass appreciation to the next generation with no gift tax.

Question 15

What assets are included in the gross estate?

Accepted Answer

The gross estate includes: (1) all assets owned outright at death (real estate, investments, bank accounts, business interests, collectibles, vehicles); (2) assets in revocable trusts; (3) life insurance owned by the decedent; (4) annuities with surviving spouse benefits; (5) joint tenancy assets (50% for spouses, full value for non-spousal JTWROS); (6) qualified retirement accounts (IRA, 401k); (7) assets transferred within 3 years of death if gift tax would have applied. Source: IRS Form 706, IRC §2033-§2044.

Question 16

Is the estate tax marital deduction unlimited?

Accepted Answer

Yes — the unlimited marital deduction allows 100% of assets passed to a US citizen spouse to be deducted from the taxable estate with no dollar limit. This effectively defers estate tax to the survivor's death. However, if the surviving spouse is a non-US citizen, the unlimited marital deduction does NOT apply — a Qualified Domestic Trust (QDOT) is required to qualify for a marital deduction. Source: IRC §2056, IRS Form 706.

Question 17

What is a SLAT for married couples under OBBB?

Accepted Answer

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust funded by one spouse that benefits the other spouse. The funding spouse removes assets from their estate; the beneficiary spouse can access trust distributions. With $15M exemption per person under OBBB, married couples can establish two SLATs (one per spouse) to move up to $30M out of their estates. Reciprocal trust doctrine must be carefully managed to avoid IRS challenge.

Question 18

What is the difference between estate tax and inheritance tax?

Accepted Answer

The federal estate tax is imposed on the ESTATE before assets are distributed — it is the estate's obligation, paid from estate assets. Inheritance taxes (imposed by 6 states: IA, KY, MD, NE, NJ, PA) are imposed on the BENEFICIARY after receiving an inheritance, at the beneficiary's state of residence. There is no federal inheritance tax. A few states (MD, NJ) have both. The federal estate tax is entirely separate from any state inheritance tax.

Question 19

What is the difference between step-up and carryover basis at death?

Accepted Answer

Under current law (IRC §1014), inherited assets receive a step-up in basis to fair market value at death — heirs owe no capital gains tax on pre-death appreciation. Carryover basis would instead preserve the decedent's original purchase price — heirs would owe tax on all accumulated gains when they eventually sell. The step-up applies to all inherited assets unless they were held in IRAs or other tax-deferred accounts (which maintain income tax deferral separately). OBBB preserves the step-up in basis.

Question 20

How is real estate valued in an estate?

Accepted Answer

Real estate in the gross estate is generally valued at fair market value at the date of death — the price a willing buyer and willing seller would agree to. For qualified real property used in a farm or closely held business, IRC §2032A allows a special use valuation that can reduce FMV by up to $1.31 million (2026 indexed). A qualified appraisal by a licensed real estate appraiser is required. Discounts for lack of marketability or fractional interests may apply to partial ownership. Source: IRS Rev. Proc. 2025-40, IRC §2032A.

Question 21

What is a 529 superfunding strategy for estate reduction?

Accepted Answer

You can 'superfund' a 529 plan by making 5 years of annual exclusion gifts at once — up to $95,000 per beneficiary in 2026 (5 × $19,000 annual exclusion). This removes up to $95,000 from your estate immediately while keeping it available for education. No additional annual exclusion gifts to that beneficiary can be made during the 5-year period. File Form 709 to elect the 5-year pro-ration. Source: IRC §529(c)(2)(B).

Question 22

What is the alternative valuation date for estate tax?

Accepted Answer

If the estate declines in value after the date of death, the executor may elect to value the estate 6 months after death (the 'alternate valuation date' under IRC §2032). This election applies to all estate assets — you cannot cherry-pick. The election is only available if it both reduces the gross estate value AND reduces the estate tax payable. This can be a significant planning tool for estates holding volatile assets. Source: IRS Form 706 instructions, IRC §2032.

Question 23

What is the Roth IRA conversion strategy for estate planning?

Accepted Answer

Converting a traditional IRA to a Roth IRA is an estate planning tool because: (1) Roth IRAs have no Required Minimum Distributions (RMDs) for the original owner — they can grow tax-free for life; (2) Roth IRAs passed to heirs allow 10 years of tax-free growth (SECURE Act); (3) converting reduces the taxable estate by the income taxes paid on conversion. OBBB did not change the Roth IRA rules. Source: IRS Publication 590-B.

Question 24

Can an estate deduct state estate taxes on the federal return?

Accepted Answer

No. The federal estate tax return (Form 706) does not allow a deduction for state estate taxes paid. State estate taxes are a separate obligation — they cannot offset the federal estate tax computation. However, some estate planning strategies (like credit shelter trusts) are still used in states with lower exemptions ($1M–$7M) to shelter assets from state estate tax even when no federal tax is owed.

Question 25

What is a charitable lead trust (CLT) vs charitable remainder trust (CRT)?

Accepted Answer

A Charitable Lead Trust (CLT) pays income to a charity for a fixed term, then passes the remaining assets to heirs. A Charitable Remainder Trust (CRT) pays income to you (or other non-charitable beneficiaries) for a fixed term or lifetime, then passes the remainder to charity. Both reduce estate tax: CLT removes future appreciation from the estate; CRT provides an estate and income tax deduction at creation. Both require irrevocability and sophisticated planning. Source: IRC §170, §664.

Question 26

What documents does an estate executor need to file?

Accepted Answer

An executor of a taxable estate typically needs to file: (1) IRS Form 706 (federal estate tax return, due 9 months from death); (2) Final Form 1040 for the decedent's last year of life; (3) Form 1041 (estate income tax return) for each year the estate has income; (4) State estate tax returns where applicable; (5) Form 709 (gift tax returns) for any prior gifts not already filed. A CPA or estate attorney is strongly recommended for estates approaching or exceeding the exemption. Source: IRS Publication 559.

Question 27

What assets are NOT included in the gross estate?

Accepted Answer

Assets generally NOT included in the gross estate: (1) Assets already transferred to an irrevocable trust (if transferred more than 3 years ago and no retained interest); (2) Life insurance held in an ILIT; (3) Annual exclusion gifts ($19,000/recipient in 2026) made during life; (4) Assets previously passed to charity via CRT or CLT; (5) Compensation earned before death but paid after (treated as income to the estate, not estate assets). Source: IRS Form 706, IRS Publication 559.

Question 28

What is the estate tax on a $20M estate in 2026?

Accepted Answer

On a $20M gross estate (no deductions, no prior gifts, single filer) in 2026: taxable estate = $20M − $15M exemption = $5M taxable. At 40% rate: estate tax = $2,000,000. Net estate to heirs: $18,000,000. Use this calculator to model specific deductions, prior gifts, and marital/charitable deductions. Source: IRS Form 706, IRC §2001.

Question 29

Should I give away assets now or wait until death?

Accepted Answer

Giving now vs at death depends on: (1) Basis — gifts during life carry over your cost basis (heirs pay capital gains on your embedded gain when they sell); inherited assets get stepped-up basis (no capital gains on pre-death appreciation). (2) Appreciation — if assets will appreciate greatly, gifting now removes future appreciation from your estate. (3) Control — you keep control until death. For assets below the $15M exemption, the step-up in basis argument often favors holding until death for low-cost-basis assets.

Question 30

What is the §6166 installment payment for estate tax?

Accepted Answer

If more than 35% of the adjusted gross estate consists of a qualifying closely held business interest, the estate may elect to pay estate tax in installments over up to 14 years under IRC §6166. A reduced interest rate applies to the deferred tax attributable to the business interest. This prevents forced liquidation of family businesses to pay estate tax. The election is made on Form 706. Source: IRS Publication 559, IRC §6166.

Question 31

What is a family limited partnership (FLP) for estate reduction?

Accepted Answer

A Family Limited Partnership (FLP) or Family Limited Liability Company (FLLC) lets senior family members transfer interests to heirs at a valuation discount (lack of control, lack of marketability — typically 15%-35%). This reduces the taxable gift and future estate value. The IRS scrutinizes FLPs heavily — they must have a legitimate business purpose, proper management, and cannot be mere asset repositories. Requires a qualified appraiser and careful structuring. Source: IRS Estate Tax Exam Technique Guide, IRC §2036.

Question 32

What records does an executor need for estate valuation?

Accepted Answer

An executor needs: (1) Date-of-death statements for all financial accounts; (2) Brokerage account statements showing security prices on date of death; (3) Real estate appraisals by qualified appraisers (Form 8283 if needed); (4) Business valuation reports for closely held businesses; (5) Retirement account statements; (6) Life insurance policy face amounts and beneficiary designations; (7) Outstanding debt statements; (8) Any prior gift tax returns (Form 709). Organize everything before retaining an estate attorney. Source: IRS Publication 559.

Item	Included in Gross Estate?	Deductible?
Real estate (FMV at death)	Yes	No (deduct mortgages separately)
Investment accounts	Yes	No
IRAs / 401(k)s	Yes — but pre-tax amounts subject to income tax when heirs withdraw	No
Life insurance (owned by decedent)	Yes	No (use ILIT to exclude)
Assets to US citizen spouse	Yes (gross)	Yes — unlimited marital deduction
Assets to qualifying charities	Yes (gross)	Yes — unlimited charitable deduction
Debts, mortgages, loans	No	Yes — reduces gross estate
Funeral and admin expenses	No	Yes

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