What Is the Federal Estate Tax Exclusion?

The federal estate tax exclusion is the maximum amount of assets you can pass on after death without paying federal estate tax.

If your estate is below this threshold, no federal estate tax is owed.

Only estates that exceed the exclusion amount are subject to the federal estate tax.

Current Exclusion Amount

For recent tax years, the exclusion has been historically high.

• 2025 → approximately $13.6 million per individual
• Married couples → up to about $27.2 million combined

This means most estates do not owe federal estate tax.

How the Estate Tax Works

The estate tax applies only to the value of your estate above the exclusion amount.

Example: If your estate is worth $15 million and the exclusion is $13.6 million, only the remaining $1.4 million may be subject to estate tax.

The tax rate on that portion can be up to 40%.

What Counts Toward Your Estate

Your estate includes most assets you own at death.

• Real estate
• Bank accounts
• Investments
• Retirement accounts
• Business interests
• Personal property

These are combined to determine your total estate value.

Portability for Married Couples

Married couples can effectively double the exclusion.

• If one spouse does not use their full exclusion, the unused portion can transfer to the surviving spouse

Example: If one spouse uses $5 million of their exclusion, the remaining amount can be passed to the surviving spouse, increasing their total available exclusion.

Why This Matters

The federal estate tax primarily affects high-net-worth individuals. However, estate planning is still important to:

• Minimize potential taxes
• Protect assets for heirs
• Take advantage of exemptions and strategies

Important Future Change

The current high exclusion is scheduled to decrease after 2025 unless laws change.

• The exclusion may drop significantly (roughly in half) starting in 2026

This could bring more estates into the taxable range.

Electronic Filing Recommendation 💻

• Use professional tax software or estate planning tools for large estates
• Keep digital records of all assets and valuations
• Work with a tax professional for estates near the exclusion limit
• File required estate tax forms electronically when applicable

Summary

The federal estate tax exclusion allows individuals to pass on a significant amount of wealth tax-free. Only estates exceeding the exclusion amount are subject to tax.

While most people will not owe estate tax, understanding the exclusion is important for long-term financial and estate planning.