Estate Tax Estimator

What This Calculator Does

Estate tax is a tax imposed on the transfer of a deceased person's estate to their heirs and beneficiaries. Unlike inheritance tax, which is paid by the person receiving the assets, estate tax is levied on the total value of the estate itself before distribution. The federal estate tax in the United States applies only to estates exceeding a certain threshold known as the applicable exclusion amount, which changes periodically due to tax legislation. [irs-estate]

Understanding estate tax is critical for anyone engaged in estate planning, particularly those with significant assets. An estate tax estimator helps you determine whether your estate might be subject to taxation and estimate the potential tax burden. This allows you to structure your estate in ways that minimize or eliminate the tax liability through various strategies such as trusts, charitable donations, and lifetime gifting.

The federal estate tax rate is effectively a flat 40% on the amount exceeding the exclusion threshold, though some states impose their own estate or inheritance taxes with different rates and exemption levels. The Tax Cuts and Jobs Act of 2017 significantly increased the federal exemption amount, making estate tax irrelevant for most Americans. However, these provisions are scheduled to sunset, which would reduce the exemption substantially.

Estate tax is distinct from inheritance tax, which some states impose directly on the beneficiaries based on their relationship to the deceased. In inheritance tax systems, spouses and children typically receive more favorable treatment, while distant relatives and unrelated beneficiaries face higher rates. Understanding the difference between these tax types is essential for accurate planning.

State Estate and Inheritance Taxes

In addition to federal estate tax, 12 states and the District of Columbia impose their own estate taxes with significantly lower exemption thresholds. Unlike the federal system, most state estate taxes start at exemption levels between $1 million and $7 million, making them relevant to a much broader range of families. For example, Oregon and Massachusetts exempt only $1 million, while Connecticut exempts $9.1 million and New York exempts $6.94 million as of 2025.

Six states impose inheritance taxes rather than estate taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Under inheritance tax systems, the tax burden is determined by the beneficiary's relationship to the deceased. In Pennsylvania, for instance, surviving spouses pay 0%, children pay 4.5%, and siblings pay 12%. Maryland uniquely imposes both a state estate tax and an inheritance tax, making it one of the more complex jurisdictions for estate planning.

The interaction between federal and state estate taxes adds another layer of complexity. The federal estate tax allows a deduction for state estate taxes paid (the state death tax deduction under IRC Section 2058), which slightly reduces the effective federal rate. However, many states do not conform to federal portability rules, meaning each spouse's state exemption must be separately used or lost.

Note that several states with estate taxes apply a cliff provision: if the estate exceeds the exemption by a certain margin, the entire value becomes taxable rather than just the excess. Massachusetts and New York are notable examples. Understanding your specific state's rules is essential because the state tax burden can easily exceed the federal tax burden for moderately sized estates.

How to Use It

Enter the estimated gross value of your estate, which includes all assets such as real estate, investments, bank accounts, retirement accounts, business interests, and personal property. The gross estate is the total fair market value of everything you own at the time of death.

Enter any applicable deductions, which may include mortgages and other debts, funeral expenses, estate administration costs, charitable bequests, and the marital deduction for assets passing to a surviving spouse. Enter the applicable exclusion amount for the relevant year. For 2025, the federal exclusion is approximately $13.99 million per individual. Enter the tax rate applicable in your jurisdiction. The federal rate is 40% on amounts exceeding the exclusion.

Press Calculate to see the taxable estate and estimated tax due. For example, an estate valued at $15 million with $500,000 in deductions and a $13.99 million exclusion would have a taxable estate of $510,000, resulting in approximately $204,000 in federal estate tax.

Formula Breakdown

The taxable estate is the gross estate reduced by allowable deductions and the applicable exclusion:

For example, with a gross estate of $20 million, exemption of $13.99 million, and deductions of $1 million, the taxable estate is $5,010,000.

The estate tax is then calculated by applying the tax rate to the taxable estate:

For the example above: $5,010,000 x 0.40 = $2,004,000 in federal estate tax. Some states impose progressive bracketed estate taxes with multiple brackets.

Sample Scenarios

The table below shows federal estate tax estimates for 2025 exemption levels ($13.99 million) at 40% rate with $500,000 in deductions.

Practical Tips

Consider lifetime gifting to reduce your estate. You can give up to $18,000 per recipient per year without using any of your lifetime exemption. Married couples can double this amount through gift splitting. This allows you to transfer substantial wealth over time without triggering gift taxes.

Implement an annual gifting program that systematically transfers assets to children, grandchildren, and other beneficiaries. Over a decade, a couple with three children can move over $1 million out of their estate tax-free using annual exclusion gifts alone. This is one of the simplest yet most effective estate tax reduction techniques available.

Use grantor retained annuity trusts (GRATs) to transfer asset appreciation to beneficiaries at minimal gift tax cost. A GRAT is an irrevocable trust where the grantor retains the right to receive an annuity payment for a fixed term. If the assets outperform the IRC Section 7520 rate, the excess appreciation passes to beneficiaries gift-tax-free. This strategy is particularly effective for volatile assets or those expected to appreciate significantly, such as startup equity or growth stocks.

Apply valuation discounts when transferring family business interests. When a business interest lacks marketability or represents a minority stake, professional appraisers can apply discounts ranging from 25% to 45%, meaning a $10 million business might transfer at a taxable value of only $6 million. Combined with annual exclusion gifting of discounted shares over several years, this can remove substantial value from the estate without using significant amounts of the lifetime exemption.

Establish credit shelter trusts to maximize the use of both spouses' exemptions. A properly structured trust can save hundreds of thousands in estate taxes for married couples by ensuring that neither spouse's exemption is wasted. Make charitable bequests to reduce the taxable estate, as charitable donations are fully deductible for estate tax purposes.

Ensure your executor makes a timely portability election on the estate tax return (Form 706) for the first spouse to die, even if the estate is below the filing threshold and no tax is due. Without this election, the deceased spouse's unused exemption is permanently lost. Proposed regulations allow the estate to elect portability on a late-filed return within five years of death, but making the election on time is always preferable.

Review your estate plan regularly, especially when tax laws change. The current high exemption levels are scheduled to sunset after 2025, which would reduce the exemption by approximately half. Consider life insurance held in an irrevocable life insurance trust to provide liquidity for estate taxes without increasing your taxable estate.

Caveats

This calculator provides estimates based on simplified assumptions about exemption amounts and tax rates. Estate tax law is complex and subject to change. The applicable exclusion amount can vary significantly by year and jurisdiction. State estate tax rules differ widely and may have their own exemption amounts, rate structures, and filing requirements.

The calculator does not account for the marital deduction, portability election, or Generation-Skipping Transfer Tax. Complex valuation issues such as discounts for lack of marketability or minority ownership interests are not modeled. This tool is a rough estimator and not tax advice.

Estate taxes are imposed on the transfer of a deceased person's assets to their heirs. Understanding how estate taxes work is essential for effective estate planning, especially for individuals with significant assets. This calculator helps you estimate potential federal estate tax liability based on current exemption levels and tax rates. Proper estate planning can significantly reduce or eliminate estate tax exposure through strategies such as trusts, gifting, and charitable donations.

Estate Tax Planning Strategies

For high-net-worth individuals, proactive estate tax planning can reduce liability by hundreds of thousands or even millions of dollars. The most common and effective strategy is the AB trust, also known as a credit shelter trust or bypass trust. In this arrangement, when the first spouse dies, their assets fund a trust that pays income to the surviving spouse for life but keeps the assets out of that spouse's estate. This ensures both spouses' federal exemptions are fully utilized. For example, a married couple with a combined estate of $20 million can shelter $27.98 million under current portability rules, but if portability is not elected on the timely filed return, the AB trust provides automatic protection regardless.

QTIP trusts (Qualified Terminable Interest Property trusts) allow a deceased spouse to provide income to a surviving spouse while controlling the eventual distribution of the remaining assets. The estate of the first spouse to die takes a marital deduction for the QTIP assets, deferring estate tax until the surviving spouse's death. This is particularly useful in blended families where the deceased spouse wants to ensure children from a prior marriage ultimately inherit the remaining trust assets.

Charitable remainder trusts (CRTs) offer a powerful dual benefit: an immediate charitable income tax deduction during life and a reduction in the taxable estate at death. The grantor transfers assets to an irrevocable trust, receives an income stream for life or a term of years, and the remainder passes to charity. For estate tax purposes, the charitable remainder is deductible from the gross estate, and the grantor avoids capital gains tax on the sale of appreciated assets inside the trust.

Family limited partnerships (FLPs) are effective for transferring business interests to younger generations at reduced values. By centralizing assets in a partnership and gifting limited partnership interests to children or trusts, the owner can apply valuation discounts for lack of marketability and lack of control, often reducing the taxable value by 25% to 40%. For instance, a $5 million business interest might be valued at only $3 million for gift tax purposes after applicable discounts, saving substantial estate tax.

Irrevocable life insurance trusts (ILITs) remove life insurance proceeds from the taxable estate entirely. The trust owns the policy, pays premiums with contributions from the grantor that qualify for the annual gift tax exclusion, and the proceeds pass to beneficiaries income tax-free and estate tax-free. This is especially valuable for providing liquidity to pay estate taxes without increasing the tax burden, as the trust can purchase assets from the estate or make loans to the executor.

Frequently Asked Questions

What is the federal estate tax exemption for 2026?

For 2026, the federal basic exclusion amount is approximately $13.99 million per individual ($27.98 million for married couples with portability). Estates below this owe no federal estate tax.

What is the top federal estate tax rate?

The federal estate tax uses a progressive marginal rate system from 18% to 40%. The 40% top rate applies to the portion exceeding the exemption.

Does the estate tax apply to all assets I own?

The gross estate includes virtually everything: real estate, bank accounts, investments, retirement accounts, business interests, and life insurance proceeds if you owned the policy.

What deductions can reduce my estate tax liability?

Common deductions include the marital deduction (unlimited transfers to surviving spouse), charitable bequests, mortgages, funeral expenses, and state estate taxes paid.

What is portability and how does it help married couples?

Portability allows a surviving spouse to use any unused portion of the deceased spouse exemption, potentially sheltering up to ~$28 million from estate tax.

What is the step-up in basis and how does it relate to estate tax?

Assets inherited from a deceased person receive a step-up in basis to their fair market value at the date of death. This means if your heirs sell inherited assets, they pay capital gains tax only on appreciation after death, not on gains that accrued during your lifetime. The step-up in basis effectively eliminates the capital gains tax liability on all appreciation that occurred before death, making it one of the most valuable tax benefits of holding appreciated assets until death.

How do gifts to grandchildren interact with the generation-skipping transfer tax?

Gifts or bequests directly to grandchildren or other skip persons may trigger the generation-skipping transfer tax (GSTT), which is imposed at a flat 40% rate on top of any estate or gift tax. However, each individual has a GSTT exemption ($13.99 million in 2025) that can be allocated to shield these transfers. Proper planning involves allocating GSTT exemption to lifetime gifts to grandchildren and to trusts that benefit multiple generations.

How are business interests valued for estate tax purposes?

The IRS requires business interests to be valued at fair market value, defined as the price a willing buyer would pay a willing seller. For closely held businesses, this involves complex appraisals considering asset-based, income-based, and market-based valuation approaches. Discounts for lack of marketability and lack of control can reduce the taxable value significantly, but the IRS scrutinizes these discounts closely and may challenge aggressive positions.

Do states offer portability for their own estate taxes?

Generally no. While the federal estate tax allows portability of the deceased spouse's unused exclusion, most states with their own estate taxes do not conform to this rule. Notable exceptions include Maryland and the District of Columbia, which have adopted portability provisions. In other states, each spouse's state exemption must be separately used through proper trust planning, making bypass trusts essential for maximizing state-level exemptions.

What happens if my estate does not file an estate tax return when required?

Failing to file Form 706 when the gross estate exceeds the filing threshold can result in severe penalties. The failure-to-file penalty is 5% of the unpaid tax per month, up to 25%. Additionally, the failure-to-pay penalty is 0.5% per month. Interest accrues on unpaid taxes from the original due date. Even if no tax is due, the portability election requires a timely filed Form 706 within nine months of death, extendable by six months. Missing this deadline permanently forfeits portability of the deceased spouse's unused exemption.

References

1. [1]Internal Revenue Service. "Estate Tax." IRS.gov, Publication 559.
2. [2]Internal Revenue Service. "Estate Tax." IRS.gov, Publication 559.
3. [3]Tax Policy Center. (n.d.). Briefing Book: The Estate Tax.
4. [4]American Bar Association. (n.d.). Introduction to Estate Planning.
5. [5]Nolo. (n.d.). Estate Tax: Everything You Need to Know.
6. [6]Investopedia. (n.d.). Estate Tax: What It Is, How It Works, and Who Pays.
7. [7]Kiplinger. (n.d.). State Estate Tax and Inheritance Tax Changes.