Inheritance and Estate Tax in the United States
The United States imposes a federal estate tax on large estates, with rates from 18% to 40% and an exemption of approximately $13.61 million in 2026. There is no federal inheritance tax (paid by beneficiaries), but some states impose separate estate or inheritance taxes.
Federal Estate Tax
The federal estate tax is imposed on the transfer of a deceased person's estate. Key features for 2026:
- Exemption: Approximately $13.61 million per individual (indexed for inflation)
- Rate: 18% to 40% progressive rates on the taxable estate
- Portability: Surviving spouse can use unused exemption (portability election required)
- Filing: Form 706 required within 9 months of death (6-month extension available)
Estate Tax Rates
| Taxable Estate (over exemption) | Marginal Rate |
|---|---|
| $0 - $10,000 | 18% |
| $10,001 - $500,000 | 20-37% (progressive) |
| $500,001 - $1,000,000 | 37-39% |
| Over $1,000,000 | 40% |
Gift Tax
The federal gift tax applies to transfers during life that exceed the annual exclusion:
- Annual Exclusion: $18,000 per donee (2026, indexed)
- Lifetime Exemption: Unified with estate tax exemption (~$13.61 million)
- Marital Deduction: Unlimited gifts to US citizen spouse are tax-free
- Educational and Medical Exclusion: Direct payments for tuition/medical expenses are exempt
Generation-Skipping Transfer Tax (GSTT)
The GSTT imposes a flat 40% tax on transfers to beneficiaries who are two or more generations below the transferor. The GSTT exemption is the same as the estate tax exemption (~$13.61 million).
Step-Up in Basis
Inherited assets receive a step-up in basis to their fair market value at the date of death. This means that when the beneficiary sells the inherited asset, capital gains tax is calculated only on appreciation after the date of death. This is a significant tax benefit for heirs.
State Estate and Inheritance Taxes
Several states impose their own estate tax (with lower exemptions) or inheritance tax (on beneficiaries):
- State Estate Tax: 12 states plus DC impose estate tax (exemptions range from $1 million to $12.06 million)
- State Inheritance Tax: 6 states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania) impose inheritance tax on beneficiaries
- Rates and exemptions vary significantly by state