Advisor Guide for Financial Professionals
Federal Estate Tax: Exemption, Portability, and Estate Tax Liquidity Planning
The federal estate tax is a tax on the transfer of property at death. It applies to the value of a decedent's taxable estate above the basic exclusion amount. The IRS lists that amount as $15 million per individual (per spouse) for decedents dying in 2026, indexed for inflation beginning in 2027. The top rate is 40%.
Each spouse has a separate exclusion. A married couple may be able to shelter up to $30 million combined for 2026 if the first spouse's unused exclusion is preserved through a portability election or trust planning. For couples who use the marital deduction, the tax often falls at the second spouse's death.
This guide is written for advisors. It covers how the tax is calculated, the 2026 and 2027 exemption picture, portability, how federal and state estate taxes interact, and how estates may plan for the cash needed to pay the tax. Figures are as of October 6, 2026, and are sourced to IRS guidance.
2026 Federal Figures at a Glance
Key Federal Estate and Gift Tax Numbers for 2026
$15M
Basic exclusion amount per individual (each spouse) for 2026 deaths, indexed for inflation beginning in 2027
40%
Top federal estate tax rate
$19,000
Annual gift tax exclusion per recipient
9 Months
Standard Form 706 due date after death
Sources: IRS, What's New: Estate and Gift Tax; IRS, 2026 Instructions for Form 706; IRS 2026 inflation adjustments. As of October 6, 2026.
Updated Annually
Federal Estate Tax Exemption for 2026 and 2027
According to the IRS, Public Law 119-21, enacted in 2025, amended IRC Section 2010(c)(3) to set the basic exclusion amount at $15 million per individual for 2026, with inflation adjustments beginning in 2027. The exclusion belongs to each spouse separately, so a married couple has two exclusions, not one shared amount. Client materials written under the Tax Cuts and Jobs Act framework may still describe an exemption that "sunsets" after 2025. The IRS's current guidance shows that framework was superseded, so advisors may want to retire or update those materials.
| Item | 2026 | 2027 |
|---|---|---|
| Basic exclusion amount (per individual; each spouse has their own) | $15,000,000 per individual | Indexed for inflation from the $15 million base; the IRS has not yet published the 2027 figure |
| Potential combined exclusion for a married couple | Up to $30,000,000, if the first spouse's exclusion is preserved through portability or trust planning | Each spouse's own exclusion is indexed for inflation. A DSUE amount received from a deceased spouse is fixed at the first death and is not indexed. |
| Top estate tax rate | 40% | Confirm when the 2027 Form 706 instructions are released |
| Annual gift tax exclusion | $19,000 per recipient | Expected in the IRS annual revenue procedure |
| Annual exclusion for gifts to a non-citizen spouse | $194,000 | Expected in the IRS annual revenue procedure |
Sources: IRS, What's New: Estate and Gift Tax; IRS, 2026 Instructions for Form 706; Rev. Proc. 2025-32. As of October 6, 2026, the IRS sources reviewed do not state a 2027 exclusion amount. The IRS typically announces inflation-adjusted figures in an annual revenue procedure, and this table will be updated when the 2027 figures are published.
Two Layers of Tax
Federal vs. State Estate Tax
A client whose estate is well below the federal exemption may still owe state estate or inheritance tax. Some states set exemptions far below the federal amount and do not allow portability. For a state-level example with worked calculations, see our guide to the Illinois estate tax.
| Feature | Federal Estate Tax | State Estate Taxes (Varies by State) |
|---|---|---|
| Who it applies to | U.S. citizens and residents, plus nonresidents with U.S.-situs assets | Residents of the state, and often nonresidents who own real or tangible property located there |
| Exemption level | $15 million per individual (each spouse) for 2026, indexed for inflation beginning in 2027 (IRS) | Set by each state; often lower than the federal amount |
| Portability | Available by election on a timely filed Form 706 | Generally not available in many states, which can make trust planning at the first death more important |
| Planning takeaway | Affects a relatively small number of high-net-worth estates | Can apply to many more clients, including those who own property in more than one state |
Sources
- IRS, What's New: Estate and Gift Tax (accessed October 6, 2026)
- IRS, 2026 Instructions for Form 706 (accessed October 6, 2026)
- IRS, Tax Inflation Adjustments for Tax Year 2026 (accessed October 6, 2026)
- IRS, Rev. Proc. 2025-32 (accessed October 6, 2026)
- IRS, Frequently Asked Questions on Estate Taxes (accessed October 6, 2026)
- IRS, Rev. Proc. 2022-32 (accessed October 6, 2026)
Important: BUI (Brokerage Unlimited, Inc.) and its agents, employees, and registered representatives do not give legal, tax, accounting, or investment advice. This content is educational and intended for financial professionals. It is not legal or tax advice and should not be relied on as such. Figures and examples are estimates for illustration only. Clients should consult their own estate planning attorney and tax advisor before making any estate or business planning decisions.
Hypothetical Illustration
A Worked Federal Estate Tax Calculation
This example is hypothetical and for education only. It does not describe a real client, a recommendation, or a projected outcome. Assumptions: an unmarried individual dies in 2026 with no prior taxable gifts. The example uses the 2026 basic exclusion amount for one individual ($15 million). That amount is indexed for inflation beginning in 2027, and in a married couple each spouse would have a separate exclusion. The example ignores state estate tax, the generation-skipping transfer tax, income tax, and any valuation discounts.
| Line Item | Amount |
|---|---|
| Closely held business interest | $14,000,000 |
| Real estate | $6,000,000 |
| Cash and marketable assets | $4,000,000 |
| Gross estate | $24,000,000 |
| Less debts and expenses | ($1,000,000) |
| Less charitable bequest | ($1,000,000) |
| Taxable estate | $22,000,000 |
| Less 2026 basic exclusion amount (one individual; indexed for inflation from 2027) | ($15,000,000) |
| Amount exposed to tax | $7,000,000 |
| Approximate federal estate tax at 40% | $2,800,000 |
What the Example Shows
When the exclusion amount is above the lower brackets of the unified rate schedule, the tax on each dollar above the exclusion is effectively 40%. In this example, about $2.8 million is due roughly nine months after death. The estate has $4 million in cash and marketable assets, and most of that would go to tax and expenses.
Without other cash sources, the executor could face selling business or real estate interests on a deadline, possibly at unfavorable prices. This is the core estate tax liquidity issue. Married couples face the same arithmetic, usually at the second death. The surviving spouse may have both exclusions available if portability was elected or trust planning preserved the first spouse's exclusion.
To see what a full multi-scenario analysis looks like, review BUI's sample Estate Tax Analysis report.
Common Questions
Federal Estate Tax FAQ
How Much Can You Inherit Without Paying Federal Estate Tax?
The federal estate tax is generally owed by the decedent's estate, not by the heir. According to the IRS, estates at or below the basic exclusion amount of $15 million per individual (per spouse) for 2026 deaths generally owe no federal estate tax, and that amount is indexed for inflation beginning in 2027. Heirs may still face state inheritance tax in some states, and income tax may apply to certain inherited assets, such as pre-tax retirement accounts.
What Is the Federal Estate Tax Rate?
The top federal estate tax rate is 40%, according to the IRS's 2026 Form 706 instructions. The schedule is graduated, but the exclusion amount sits above the lower brackets. As a result, the taxable estate above the exclusion is generally taxed at an effective 40%.
Can a Parent Give a Child $50,000 Tax-Free?
Usually no gift tax is due, but a gift return may be required. For 2026, the annual exclusion is $19,000 per recipient. The amount above that is generally reported on Form 709 and reduces the donor's lifetime exemption, but no gift tax is owed unless the donor's cumulative taxable gifts exceed the exemption. Married couples may be able to elect gift-splitting.
How Can Clients Reduce or Plan for Federal Estate Tax?
Common approaches include the marital and charitable deductions, portability elections, lifetime gifts, trust planning, and ILIT-owned life insurance to provide cash for the tax. Each involves trade-offs, such as loss of control, administrative cost, or income tax basis effects. Suitability depends on the client's situation and should be decided with qualified legal and tax counsel.
What Is the Federal Estate Tax Exemption for 2027?
As of October 6, 2026, the IRS sources reviewed have not published a 2027 figure. The IRS says the $15 million per-individual base amount, which each spouse has separately, is adjusted for inflation beginning in 2027 and that future-year amounts are published in annual revenue procedures. A DSUE amount received from a deceased spouse is not indexed. This page will be updated when the figure is released.
Is Life Insurance Included in the Taxable Estate?
Life insurance proceeds are generally included in the gross estate if the insured held incidents of ownership or the proceeds were payable to the estate. A policy owned from the start by a properly structured ILIT may be excluded. An existing policy transferred to an ILIT may still be included if the insured dies within three years of the transfer.