Federal estate tax exemption for 2025: $13.99 million per individual, $27.98 million per married couple (with proper planning).

This is up from $13.61M in 2024 due to inflation adjustments.

Tax rate: 40% on amounts exceeding exemption.

Important: Current high exemption expires December 31, 2025.

Starting 2026, exemption drops to ~$7 million per person (50% reduction) unless Congress acts.

State exemptions: 12 states + DC have separate estate taxes with much lower exemptions ($1M-$13.99M).

Unlimited marital deduction allows tax-free transfer of any amount to surviving US citizen spouse, regardless of estate size.

However, this can waste first spouse exemption.

Better strategy: Use bypass trust (credit shelter trust) to preserve both exemptions.

Example: $25M estate, first spouse dies 2025.

Option 1: Leave all to spouse = $0 tax now, but at second death: $25M - $13.99M = $11.01M taxable × 40% = $4.4M tax.

Option 2: $13.99M to bypass trust + $11.01M to spouse = $0 tax both deaths, saving $4.4M.

Non-citizen spouse: Limited to $185,000 annual exclusion unless using QDOT.

Estate tax states (2025): Connecticut ($12.92M exemption), DC ($4.71M), Hawaii ($5.49M), Illinois ($4M), Maine ($6.41M), Maryland ($5M), Massachusetts ($2M), Minnesota ($3M), New York ($6.94M), Oregon ($1M), Rhode Island ($1.77M), Vermont ($5M), Washington ($2.193M).

Inheritance tax states: Iowa (phasing out by 2025), Kentucky, Maryland (both estate + inheritance), Nebraska, New Jersey, Pennsylvania.

Rates: 1-20% depending on state and beneficiary relationship.

Planning tip: Consider moving to no-tax state if approaching thresholds.

Portability allows surviving spouse to inherit deceased spouse unused federal estate tax exemption, effectively doubling exemption to $27.98M (2025).

Requirements: File Form 706 within 9 months of death (+ 6 month extension) even if no tax due.

Must elect portability on return.

Example: Husband dies with $3M estate.

Unused exemption: $13.99M - $3M = $10.99M transfers to wife.

Wife estate tax exemption: $13.99M + $10.99M = $24.98M total.

Limitations: Not available for generation-skipping tax, state estate taxes, or if surviving spouse remarries and new spouse dies first.

For $15M estate in 2025 (single person): Gross estate: $15,000,000.

Less exemption: -$13,990,000.

Taxable estate: $1,010,000.

Federal tax (40%): $404,000.

Effective rate: 2.69% ($404k/$15M).

With planning strategies: Use annual gifts ($18k/person/year), charitable deductions, valuation discounts (25-35% for business/real estate), GRAT/QPRT trusts.

Result: Could reduce taxable estate below exemption = $0 tax.

Married couple: With portability, $15M estate pays $0 federal tax (under $27.98M combined exemption).

Major change coming: Current $13.99M exemption (2025) sunsets December 31, 2025.

In 2026, reverts to 2017 law: ~$7M per person ($14M married) adjusted for inflation.

Impact: Estates $7M-$14M suddenly taxable. $10M estate in 2025: $0 tax.

Same $10M estate in 2026: $3M taxable × 40% = $1.2M tax.

Planning urgency: Use 2025 high exemption before expiration via: Lifetime gifts to trusts, SLATs (Spousal Lifetime Access Trusts), sales to grantor trusts.

IRS confirmed: No clawback if use exemption now and law changes.

Act by December 31, 2025.