The federal estate tax rate and threshold for 2024

The federal estate tax is a flat 40 percent tax on estates that exceed a certain dollar amount. That threshold — called the exemption — is $13.61 million per person in 2024. If your estate is smaller than that, no federal estate tax is owed, regardless of who inherits it.

The exemption amount changes each year based on inflation. It was $12.92 million in 2023 and will shift again in 2025. The 40 percent rate itself does not change year to year — only the threshold does.

The tax applies only to the value above the exemption. If an estate is worth $14 million, only the $390,000 over the threshold is taxed at 40 percent, which equals $156,000 in federal estate tax owed.

Key Takeaways

  • Federal estate tax is 40 percent, but only on estates larger than $13.61 million in 2024, so most estates owe nothing.
  • The exemption threshold is scheduled to drop to roughly $7 million per person in 2026 unless Congress changes the law.
  • States including New York, Massachusetts, and Oregon have their own estate taxes with lower thresholds, so you may owe state tax even if federal tax does not explore.
  • Married couples can combine exemptions to shelter up to $27.22 million in 2024, but only if the surviving spouse's estate plan is structured correctly.
  • The tax is paid from the estate before money goes to heirs, so it reduces what beneficiaries actually receive.

Why the exemption is about to shrink

The current high exemption of $13.61 million is temporary. It was set by the Tax Cuts and Jobs Act of 2017, which doubled the exemption from roughly $5.5 million. That law expires at the end of 2025.

Starting January 1, 2026, the exemption is scheduled to drop back to approximately $7 million per person (adjusted for inflation), unless Congress passes new legislation to extend or change it. This means an estate worth $8 million would owe federal estate tax starting in 2026, even though it would owe nothing in 2024.

Because this change is not certain — Congress could extend the higher exemption or change the rules entirely — many people with estates between $7 million and $13.61 million are reviewing their plans now with an attorney or tax professional.

State estate taxes and inheritance taxes

Seventeen states plus Washington, D.C., have their own estate taxes separate from the federal tax. These state taxes use lower exemption thresholds, meaning you can owe state tax even if your estate is too small for federal tax.

New York has a $6.94 million exemption in 2024. Massachusetts has a $1 million exemption. Oregon has a $1 million exemption. Washington state has no income tax but does have a capital gains tax that can affect estates. Each state sets its own rate, threshold, and rules.

Some states also have inheritance taxes, which are different from estate taxes. An inheritance tax is paid by the person who receives the money, not by the estate itself. Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance taxes. The rate and threshold depend on who inherits — spouses and children often pay nothing or a lower rate, while more distant relatives or non-relatives pay more.

How the tax is calculated and paid

Estate tax is calculated on the total value of everything the deceased person owned at death: real estate, bank accounts, investments, retirement accounts, life insurance, business interests, and personal property. Debts, funeral costs, and estate administration expenses are subtracted first.

The executor or personal representative of the estate is responsible for filing Form 706 (the federal estate tax return) with the IRS if the estate exceeds the exemption. This form is due nine months after death, though an extension can be requested. State estate tax returns follow similar timelines but vary by state.

The tax is paid from estate assets before the remaining money is distributed to heirs. If the estate does not have enough liquid cash, the executor may need to sell assets — such as real estate or investments — to pay the bill. This is one reason people with large estates sometimes carry life insurance: the insurance payout can provide cash to cover the tax without forcing asset sales.

Strategies people use to reduce estate tax

People with estates near or above the exemption threshold often work with an attorney to reduce what their heirs will owe. Common approaches include setting up trusts, making gifts during life (which use a separate lifetime gift tax exemption), establishing charitable giving plans, or using life insurance in a specific way.

A revocable living trust does not reduce estate tax, but it does avoid probate and keep the estate private. An irrevocable trust can remove assets from the taxable estate if structured correctly, but the person who creates it loses control of those assets.

Married couples can use a strategy called portability to combine unused exemptions, allowing the surviving spouse to shelter up to $27.22 million in 2024. This requires filing a specific form with the IRS after the first spouse dies, even if no tax is owed.

Because these strategies have legal and tax consequences, and because the law is scheduled to change in 2026, anyone with an estate over $5 million should discuss their situation with an estate planning attorney or tax professional.

What happens if you do not plan

If someone dies without a will or trust and their estate exceeds the exemption, the IRS still collects the 40 percent tax. The executor has nine months to file the return and pay the bill. If the bill is not paid on time, penalties and interest accrue.

Without a plan, heirs may have to sell assets quickly to cover the tax, sometimes at unfavorable prices. A family business or farm might have to be sold in pieces or to outsiders because there is no cash available to pay the tax. This is why estate planning is often described as protecting what you have worked to build.

If an estate is insolvent — meaning debts and taxes exceed assets — the executor pays creditors and the IRS first, and heirs may receive nothing. State law determines the order in which claims are paid.

Frequently Asked Questions

Do I owe estate tax if I leave everything to my spouse?

No. The marital deduction allows you to leave an unlimited amount to a U.S. citizen spouse with no federal estate tax. However, the tax is only delayed — your spouse's estate will owe tax on the combined amount when they die, unless they also use the exemption or leave money to someone else. State estate taxes may still explore depending on where you live.

Is life insurance included in the taxable estate?

Yes, if you own the policy. The death benefit is counted as part of your estate value. If the policy is owned by an irrevocable trust or another person, it may not be included. This is why some people transfer ownership of life insurance to keep the proceeds out of the taxable estate.

What if my estate is worth $13.6 million — do I owe tax?

No. You are under the $13.61 million threshold for 2024, so no federal estate tax is owed. However, you should still check whether your state has an estate tax with a lower threshold. You may also want to review your plan with an attorney, since the exemption drops in 2026.

Can I give money to my children now to avoid estate tax later?

Yes, but there are limits. You can give up to $18,000 per person per year (in 2024) without using your lifetime exemption. Larger gifts use your exemption, which reduces what you can shelter from tax when you die. Gifts to spouses and to charities have different rules. A tax professional can explain the strategy for your situation.

Who actually pays the estate tax — the estate or the heirs?

The estate pays it. The executor uses estate assets to pay the IRS before distributing money to heirs. This means heirs receive less than they would have if there were no tax. In some cases, the will or trust specifies that certain heirs bear more of the tax burden than others.