Estate Tax in 2026: The $13.61 Million Exemption and What It Means for Your Family
The federal estate tax exemption stands at $13.61 million per individual in 2026, or $27.22 million for a married couple using portability. This means that estates below these thresholds pass to heirs completely free of the 40% federal estate tax. According to IRS Statistics of Income data, only about 4,100 taxable estate tax returns were filed in 2023 -- roughly 0.16% of the 2.5 million Americans who died that year.
But there is a deadline approaching that could double or triple the number of affected estates. The Tax Cuts and Jobs Act (TCJA) of 2017, which roughly doubled the exemption from $5.49 million to its current inflation-adjusted level, is scheduled to sunset on December 31, 2025. If Congress does not act, the exemption reverts to approximately $7 million per person (the pre-TCJA baseline, adjusted for inflation) starting January 1, 2027. As of this writing in April 2026, no legislative extension has been enacted.
Who Should Care: The $7 Million to $27 Million Window
If your combined estate is below $7 million per person ($14 million for married couples), the sunset does not affect you regardless of what Congress does. If your estate exceeds $27.22 million for a couple, you already face estate tax exposure under current law. The group most impacted by the potential sunset is estates valued between $7 million and $13.61 million per person -- roughly $14 million to $27.22 million for married couples.
According to the Federal Reserve's Survey of Consumer Finances (2022), approximately 2.7 million American households have a net worth between $5 million and $25 million. The Tax Policy Center estimates that if the exemption drops to $7 million, the number of taxable estates would rise from approximately 4,100 to 25,000-30,000 per year -- a 6x increase.
| Scenario | Exemption per Person | Exemption per Couple | Taxable Estates/Year | Tax Revenue |
|---|---|---|---|---|
| Current law (2026) | $13.61M | $27.22M | ~4,100 | $22.4B |
| Post-sunset (2027+) | ~$7.0M | ~$14.0M | ~28,000 | $67B (est.) |
| Pre-TCJA (2017) | $5.49M | $10.98M | ~5,500 | $19.7B |
The 40% Tax Rate on Every Dollar Above the Exemption
The federal estate tax rate is a flat 40% on the taxable estate (gross estate minus exemption, debts, expenses, and charitable bequests). For a $20 million estate under a $7 million exemption:
- Taxable amount: $20,000,000 - $7,000,000 = $13,000,000
- Federal estate tax: $13,000,000 x 40% = $5,200,000
- Effective tax rate on total estate: 26%
Under the current $13.61 million exemption, that same estate pays:
- Taxable amount: $20,000,000 - $13,610,000 = $6,390,000
- Federal estate tax: $6,390,000 x 40% = $2,556,000
- Effective tax rate on total estate: 12.8%
The difference: $2,644,000 in additional estate tax if the exemption sunsets. For a married couple with portability, the numbers double.
State Estate Taxes: The Hidden Layer
Twelve states and the District of Columbia impose their own estate taxes with exemptions far below the federal level. Massachusetts and Oregon have the lowest exemption at $1 million. Even if the federal exemption stays at $13.61 million, residents of these states face state-level estate tax:
| State | Exemption | Top Rate | Combined with Federal |
|---|---|---|---|
| Massachusetts | $1,000,000 | 16% | Up to 51.2% |
| Oregon | $1,000,000 | 16% | Up to 51.2% |
| New York | $6,940,000 | 16% | Up to 51.2% |
| Connecticut | $13,610,000 | 12% | Up to 48.8% |
| Washington | $2,193,000 | 20% | Up to 54.4% |
| Illinois | $4,000,000 | 16% | Up to 51.2% |
| Maryland | $5,000,000 | 16% | Up to 51.2% |
| Minnesota | $3,000,000 | 16% | Up to 51.2% |
| Vermont | $5,000,000 | 16% | Up to 51.2% |
| Hawaii | $5,490,000 | 20% | Up to 54.4% |
| Maine | $6,800,000 | 12% | Up to 48.8% |
| Rhode Island | $1,774,583 | 16% | Up to 51.2% |
| DC | $4,710,800 | 16% | Up to 51.2% |
Washington State has the highest combined marginal rate: 40% federal + 20% state = 54.4% on estates exceeding both thresholds (with a deduction for state taxes paid against the federal estate).
Five Strategies to Use Before the Sunset
1. Annual Exclusion Gifting ($18,000/year per recipient)
The annual gift tax exclusion is $18,000 per recipient in 2026 (Revenue Procedure 2025-13). A married couple can give $36,000 per recipient per year with no gift tax return required. For a family with 3 children and 6 grandchildren (9 recipients), that is $324,000/year removed from the estate with zero gift or estate tax consequences.
Over 5 years: $1,620,000 transferred tax-free. Over 10 years: $3,240,000.
2. Spousal Lifetime Access Trust (SLAT)
A SLAT is an irrevocable trust that uses the current high exemption to shelter assets from estate tax while allowing the non-grantor spouse to access trust assets. A married couple can each create a SLAT, using up to $13.61 million of their exemption, effectively locking in the current exemption level even if it sunsets.
The IRS confirmed in Treasury Regulation 20.2010-1(c) that gifts made using the current exemption will not be "clawed back" if the exemption later decreases. This is the single most important planning opportunity for estates in the $14-$27 million range.
3. Grantor Retained Annuity Trust (GRAT)
A GRAT transfers asset appreciation out of the estate while the grantor retains an annuity stream. If the assets outperform the IRS Section 7520 rate (currently 5.0% for April 2026), the excess passes to beneficiaries gift-tax-free. A 2-year GRAT funded with $5 million in assets returning 10% annually transfers approximately $475,000 tax-free.
4. Intentionally Defective Grantor Trust (IDGT)
An IDGT sale transfers assets to an irrevocable trust in exchange for a promissory note at the Applicable Federal Rate (AFR). The April 2026 mid-term AFR is 4.37%. Any growth above 4.37% accrues to the trust beneficiaries outside the estate. On a $10 million transfer with 8% annual returns, approximately $3,630,000 shifts out of the estate over 10 years.
5. Charitable Remainder Trust (CRT)
A CRT provides income to the grantor for life (or a term of years), then distributes remaining assets to charity. The present value of the charitable remainder qualifies for an estate tax deduction. For a $3 million CRT with a 5% annual payout and a 20-year term, the charitable deduction is approximately $1,380,000 (based on IRS actuarial tables and the Section 7520 rate).
The Timeline: What to Do and When
The TCJA sunset is December 31, 2025. However, estate planning transactions -- particularly irrevocable trust creation, funding, and gift tax return filing -- take 60-120 days to execute properly. The practical deadline for meaningful planning was Q3 2025.
If you missed that window, Congress may still act. But the prudent approach for estates in the exposure zone is:
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Get a current estate valuation. Include all assets: real estate, retirement accounts, life insurance death benefits, business interests, and digital assets. Life insurance is frequently overlooked -- a $2 million policy owned by the insured is included in the taxable estate.
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Model the sunset scenario. Run the numbers with both the current $13.61M exemption and the post-sunset $7M exemption. If the tax difference exceeds $100,000, planning is warranted.
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Consult an estate planning attorney who specializes in high-net-worth transfers. The cost of a comprehensive estate plan ($5,000-$25,000) is trivial compared to a $2-5 million estate tax bill.
Life Insurance as an Estate Tax Funding Tool
For estates that cannot be restructured to fall below the exemption, life insurance provides a liquidity strategy. A second-to-die policy (paying out upon the death of the surviving spouse, when the estate tax bill comes due) placed in an Irrevocable Life Insurance Trust (ILIT) provides estate-tax-free cash to pay the tax bill without forced asset liquidation.
Example: A $20 million estate facing a potential $2.6 million estate tax bill. A second-to-die policy with a $2.6 million death benefit costs approximately $18,000-$35,000/year in premiums for a healthy couple aged 60. Over 20 years, total premiums of $360,000-$700,000 fund a $2.6 million tax-free benefit -- a 3.7x to 7.2x return, guaranteed. The ILIT structure keeps the death benefit outside the taxable estate.
The American Council of Life Insurers (ACLI) reports that estate planning is the primary purpose for 18% of all life insurance policies with death benefits exceeding $1 million. The product is specifically designed for this use case.
Model your estate tax exposure with Voritanel -- input your assets and family structure to see the estate tax impact under current law and post-sunset scenarios, with strategy recommendations.
Frequently Asked Questions
Q: Will Congress extend the current exemption? As of April 2026, no extension has been enacted. Legislative proposals exist but face partisan gridlock. Estate planning professionals recommend acting as if the sunset will occur and adjusting later if Congress acts.
Q: Does gifting reduce my lifetime exemption? Annual exclusion gifts ($18,000 per recipient in 2026) do not count against the lifetime exemption. Gifts exceeding the annual exclusion reduce your remaining lifetime exemption dollar for dollar, but the anti-clawback rule in Treasury Regulation 20.2010-1(c) protects gifts made under the current high exemption even if the exemption later decreases.
Data Sources:
- IRS Statistics of Income, Estate Tax Returns (2023)
- Tax Cuts and Jobs Act of 2017 (P.L. 115-97)
- IRS Revenue Procedure 2025-13 (inflation adjustments)
- Treasury Regulation 20.2010-1(c) (anti-clawback rule)
- Federal Reserve Survey of Consumer Finances (2022)
- Tax Policy Center, Estate Tax Revenue Projections (2025)
- IRS Section 7520 rates, April 2026
Disclaimer: This analysis is for educational purposes only and does not constitute legal, tax, or financial advice. Estate tax law is complex and state-specific. Consult a qualified estate planning attorney and tax professional.