Plan Your Legacy: The 2025 Guide to Estate Taxes
An estate tax (often referred to as the "death tax") is a federal—and sometimes state—levy on the transfer of a person's assets after their death. It is calculated on the "taxable estate," which is the total gross value of all assets minus specific allowable deductions like mortgages, charitable gifts, and funeral expenses.
While the federal government sets a high exemption bar ($14.05 million per individual in 2025), twelve states and the District of Columbia levy their own estate taxes, often with much lower, punishing exemptions. This calculator empowers you to project both liabilities instantly.
The 2026 Estate Tax "Sunset Provision" Crisis
The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the federal estate tax exemption. However, this massive tax shield is scheduled to "sunset" or automatically expire on January 1, 2026.
If Congress does not pass new legislation, the exemption will brutally revert to its pre-2018 level. Adjusted for inflation, this means the exemption will plummet from over $14 million down to roughly $7 million per individual (or $14 million for a married couple). High-net-worth families who feel safe today will suddenly find millions of dollars exposed to a staggering 40% federal tax bracket. Proactive estate planning in 2025 is not optional; it is mandatory.
Understanding DSUE and Portability
Portability is one of the most powerful tools available to married couples. It allows a surviving spouse to inherit the Deceased Spousal Unused Exclusion (DSUE) from their late spouse.
- How it works: If the 2025 exemption is $14.05 million and the first spouse passes away only using $4.05 million of their exemption, the remaining $10 million is not lost. It can be "ported" over to the surviving spouse.
- The Result: The surviving spouse now commands a total exemption of $24.05 million to shield assets for their heirs.
- The Catch: To claim DSUE, the executor must file a federal estate tax return (Form 706) for the first spouse's estate, even if no tax is owed. Many families miss this crucial step and lose millions in tax protection.
Frequently Asked Questions
What is the difference between an Estate Tax and an Inheritance Tax?
An estate tax is paid by the deceased person's estate directly out of their assets before any money is distributed to heirs. An inheritance tax is paid individually by the person who receives the money or property. The federal government does not have an inheritance tax, but six states do (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania). Note: Maryland is the only state to impose both an estate and inheritance tax.
Does my state have its own estate tax?
As of 2025, twelve states and D.C. impose an estate tax: Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, and Vermont. States like Massachusetts and Oregon have exemptions of just $2 million and $1 million, respectively, capturing many middle-class estates.
How can I protect my assets from the 2026 Sunset?
Strategies include making large lifetime taxable gifts now to lock in the high $14.05M exemption (the IRS has confirmed there will be no "clawback" penalty for doing this). Other strategies involve establishing Irrevocable Life Insurance Trusts (ILITs) or Spousal Lifetime Access Trusts (SLATs). You must consult a qualified estate planning attorney immediately, as executing these trusts takes months.