Estate Tax Calculator — Federal Estate Tax Exposure
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Taxable Estate
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Estimated Federal Estate Tax
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Effective Tax Rate
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How Estate Planning for Tax Exposure Works
Estate planning for tax exposure is the process of estimating, and then minimizing, the federal estate tax that may apply when assets transfer at death. The federal estate tax applies to the total value of a deceased person's assets above the lifetime exemption amount, currently taxed at a top rate of 40%. According to the IRS, only estates exceeding the exemption threshold must file Form 706, but proactive planning can save families millions in taxes.
Under the Tax Cuts and Jobs Act (TCJA), the exemption was roughly doubled to $13.61 million per individual in 2024 ($13.99 million in 2025). However, this provision sunsets at the end of 2025, and the exemption is expected to revert to approximately $7 million per individual (inflation-adjusted) in 2026. This calculator helps you estimate your exposure under either scenario. For detailed bracket-by-bracket tax calculations, use our Estate Tax Calculator.
How Estate Tax Exposure Is Calculated
This calculator uses a simplified but accurate approach:
Gross Estate = Total Estate Value + Life Insurance ProceedsTaxable Estate = Gross Estate - Exemption - Charitable BequestsEstimated Tax = Taxable Estate x 40%
For example, an individual with a $15 million estate, $500,000 in life insurance, no charitable bequests, and the 2026 exemption of $7 million would have a gross estate of $15.5 million, a taxable estate of $8.5 million, and an estimated tax of $3.4 million. With portability (married), the exemption doubles to $14 million, reducing the taxable estate to $1.5 million and the tax to $600,000.
Key Terms You Should Know
- Lifetime Exemption: The total amount you can transfer during life and at death without owing federal estate or gift tax. The 2025 exemption is $13.99 million per person.
- Portability: Allows a surviving spouse to use the deceased spouse's unused exemption, effectively doubling the couple's combined exemption. Must be elected by filing Form 706 timely.
- Irrevocable Life Insurance Trust (ILIT): A trust that owns life insurance policies, removing the death benefit from the insured's taxable estate.
- Annual Gift Exclusion: The amount you can gift per recipient per year without using your lifetime exemption. Set at $18,000 per recipient in 2024 ($19,000 in 2025) per IRS guidelines.
- Charitable Remainder Trust (CRT): Provides income to the donor during life, with the remainder going to charity at death, reducing the taxable estate.
- GRAT (Grantor Retained Annuity Trust): Transfers appreciating assets to beneficiaries at a reduced gift tax cost, useful for high-growth investments.
Estate Tax Exemption Timeline
The exemption has changed significantly over the past two decades. Understanding the trajectory helps with long-term planning.
| Year | Individual Exemption | Top Rate | Notes |
|---|---|---|---|
| 2017 | $5.49M | 40% | Pre-TCJA |
| 2018 | $11.18M | 40% | TCJA doubled exemption |
| 2024 | $13.61M | 40% | Inflation adjusted |
| 2025 | $13.99M | 40% | Last year of TCJA rates |
| 2026 (est.) | ~$7.0M | 40% | TCJA sunset reversion |
Practical Examples
Example 1 -- Single individual, 2026 exposure: Robert has a $12 million estate including a $1 million life insurance policy he owns. Under the 2026 exemption of ~$7 million, his taxable estate is $6 million ($13M gross - $7M exemption), yielding an estimated tax of $2.4 million. If he transfers the policy to an ILIT, his gross estate drops to $12 million, taxable estate to $5 million, and tax to $2 million -- saving $400,000.
Example 2 -- Married couple with portability: Susan and David have a combined $20 million estate. Using portability with the 2026 exemption (~$14 million combined), their taxable estate is $6 million with an estimated tax of $2.4 million. By making $500,000 in charitable bequests, they reduce the taxable estate to $5.5 million and the tax to $2.2 million. Our Charitable Giving Calculator can model the income tax benefits of lifetime giving.
Example 3 -- Family caught off guard by life insurance: The Watsons have a $6 million estate -- under the 2026 exemption. However, they own a $2 million term life insurance policy, pushing their gross estate to $8 million and creating a $1 million taxable estate and $400,000 in estate tax. Transferring the policy to an ILIT would eliminate the tax entirely.
Strategies to Reduce Estate Tax Exposure
- Make annual exclusion gifts: Give up to $19,000/recipient/year (2025) without using your lifetime exemption. A couple gifting to 4 grandchildren moves $152,000/year out of their estate.
- Establish an ILIT: Removes life insurance proceeds from your taxable estate. The policy must be in the trust for 3+ years to avoid the "3-year rule" lookback.
- Use portability: File Form 706 for the first spouse who passes to preserve their unused exemption for the survivor. This is free insurance against future exemption reductions.
- Consider charitable remainder trusts: Provide lifetime income while reducing the taxable estate and generating income tax deductions.
- Act before the 2026 sunset: The IRS has confirmed that gifts made under the higher 2018-2025 exemption will not be "clawed back" after the exemption drops. Use our Net Worth Calculator to assess your total estate value.
Frequently Asked Questions
What is the federal estate tax exemption for 2026?
The 2026 federal estate tax exemption is expected to revert to approximately $7 million per individual (adjusted for inflation) when the Tax Cuts and Jobs Act provisions expire at the end of 2025. For 2025, the exemption is $13.99 million per individual ($27.98 million for married couples using portability). This dramatic reduction means estates between $7 million and $14 million that are currently exempt could face significant tax bills starting in 2026. The IRS will publish the final inflation-adjusted figure before January 2026, so families in this range should consult an estate attorney now to plan ahead.
Is life insurance included in my taxable estate?
Yes, life insurance proceeds are included in your taxable estate if you own the policy or have any "incidents of ownership" (such as the right to change beneficiaries or borrow against it) at the time of death. A $2 million term policy owned personally can push an otherwise exempt $6 million estate into taxable territory under the 2026 exemption. The solution is an Irrevocable Life Insurance Trust (ILIT): the trust owns the policy, you make annual gifts to the trust to cover premiums, and the death benefit is excluded from your estate. The policy must be held in the trust for at least 3 years before death to avoid the IRS lookback rule.
What is portability and how do I elect it?
Portability allows a surviving spouse to use the deceased spouse's unused estate tax exemption amount, effectively doubling the combined exemption. To elect portability, the executor must file a timely federal estate tax return (Form 706) for the deceased spouse, even if no tax is owed and the estate is below the filing threshold. The IRS allows late portability elections under certain revenue procedures, but timely filing is strongly recommended. For 2026, portability could mean the difference between a $7 million exemption (single) and $14 million (married), potentially saving $2.8 million in estate tax for a $21 million couple.
How can I reduce my estate tax exposure before 2026?
The most effective strategies before the 2026 sunset include making large lifetime gifts now (the IRS confirmed no clawback of gifts made under the higher exemption), establishing irrevocable trusts to remove assets from your estate, transferring life insurance to an ILIT, making annual exclusion gifts ($19,000/recipient in 2025), creating charitable remainder trusts, and using GRATs to transfer appreciating assets. For families with estates between $7 million and $14 million, the window to use the higher exemption closes December 31, 2025. Consult an estate planning attorney to determine which strategies fit your specific situation.
What is the difference between estate tax and inheritance tax?
Estate tax is a federal tax levied on the deceased person's estate before assets are distributed to beneficiaries -- the estate pays it. Inheritance tax is a state-level tax paid by the individual beneficiary who receives the assets. Currently, six states impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state with both an estate tax and an inheritance tax. The federal government does not impose an inheritance tax. State estate taxes exist in 12 states and the District of Columbia, often with much lower exemptions ($1-5.85 million) than the federal exemption.