The federal estate tax, and why almost no estate pays it

Why it exists

The estate tax is a tax on the transfer of wealth at death, not on the beneficiaries who receive it. It has always applied to a small fraction of estates, and the exclusion amount has risen substantially over the last two decades, which is why most families encounter the subject only to rule it out.

Portability exists because of a fairness problem. Before 2011, an exclusion that the first spouse to die did not use simply vanished, which penalized couples whose assets were held mostly in one name. Since January 1, 2011, an estate with a surviving spouse can elect to pass the unused amount to that spouse.

The reason this matters to families well below the threshold is that circumstances change. A surviving spouse may inherit, sell a business, or live another thirty years while asset values rise. The exclusion transferred at the first death is fixed and preserved. Electing it costs a filing; failing to elect it cannot be recovered after the deadlines described below.

How it actually works

First establish the gross estate. The Internal Revenue Service describes it as an accounting of everything the person owned or had certain interests in at the date of death, valued at fair market value, meaning the price at which property would change hands between a willing buyer and a willing seller. It includes cash and securities, real estate, insurance, trusts, annuities and business interests, and it explicitly includes nonprobate as well as probate property. Life insurance the person owned is inside the gross estate even though it never touches probate.

Then compare against the exclusion for the year of death. For deaths during 2026 the basic exclusion amount is $15,000,000,2026 published by the Internal Revenue Service in its 2026 inflation adjustments under Revenue Procedure 2025-32. For deaths during 2025 the figure was $13,990,0002025. The exclusion is set by the year of death, not by the year of filing, so always check the figure for the correct year.

If a return is required, Form 706 is due nine months after the date of death. Form 4768 extends the filing by up to six months. An extension of time to file is not automatically an extension of time to pay, so estimate and pay with the extension request.

For portability, the election is made on a timely filed Form 706 even where no tax is due. Where that deadline was missed, Revenue Procedure 2022-32 provides a simplified method: an estate that was not otherwise required to file, whose decedent died after December 31, 2010 leaving a United States citizen or resident spouse, may file a late Form 706 electing portability on or before the fifth annual anniversary of the date of death, provided the return carries the statement the procedure requires.

What to do

1. 1Write down the date of death and look up the basic exclusion amount for that specific year on the Internal Revenue Service estate and gift tax page.
2. 2Build the gross estate list, including everything that passes outside probate: life insurance owned by the deceased, retirement accounts, joint property and business interests.
3. 3If the total is anywhere within reach of the exclusion, engage an estate tax professional now rather than at month eight.
4. 4Diary the date nine months from the death, and the date six months after that, before anything else takes your attention.
5. 5If there is a surviving spouse, decide deliberately whether to file Form 706 to elect portability, and record the decision and the reason.
6. 6Check your state department of revenue for a state estate tax or inheritance tax, which may apply at a far lower threshold.

Words you will meet

basic exclusion amount

The value of an estate that passes free of federal estate tax, set by the year the person died, which is $15,000,000 for deaths during 2026.

gross estate

Everything the person owned or held certain interests in at death, at fair market value, including property that never goes through probate.

form 706

The federal estate tax return, due nine months after the date of death and extendable by six months.

portability

The election letting a surviving spouse inherit the unused federal exclusion of the spouse who died first.

deceased spousal unused exclusion

The specific amount of unused exclusion transferred to the surviving spouse by the portability election.

fair market value

The price property would change hands for between a willing buyer and a willing seller, neither under compulsion, which is the estate tax valuation standard.

What this does not cover

This module does not cover the generation skipping transfer tax, gift tax returns for lifetime transfers, or valuation discounts for closely held business interests. Each is specialist territory and each needs a qualified estate tax professional.