Glossary

Estate tax

A federal tax on the transfer of a deceased person's assets above an exemption amount, with a top rate of 40%; some states levy their own.

Also called: federal estate tax, death tax

The federal estate tax is a tax on the value of property transferred at death. It applies to the gross estate — everything the decedent owned or controlled, including life insurance the decedent owned — minus deductions for debts, expenses, charitable gifts and property left to a surviving spouse who is a U.S. citizen. Only the amount above the federal estate tax exemption is taxed, at a top rate of 40%.

For 2026, the IRS sets the basic exclusion amount at $15 million per person, after the 2025 tax law known as the One Big Beautiful Bill Act raised it; it will be indexed for inflation starting in 2027. Married couples can combine exemptions through portability. Hypothetical example: a single person dies in 2026 with a $14 million estate plus a $3 million life insurance policy she owned. Ignoring deductions, the $17 million estate is $2 million above the exemption, so about $800,000 in federal estate tax could be due.

About a dozen states and the District of Columbia have their own estate taxes, often with much lower exemptions, and a few levy inheritance taxes. Life insurance can create estate tax or provide cash to pay it, and an irrevocable life insurance trust can keep proceeds out of the estate. See life insurance and the federal estate tax, state estate and inheritance taxes and life insurance and the estate tax exposure check.

Last reviewed October 4, 2026

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Related terms

Federal estate tax exemption The amount a person can pass at death or give during life before federal estate and gift tax applies: $15 million per person for 2026, per the IRS. Estate Everything a person owns at death, from property and accounts to some life insurance, which is settled and distributed to heirs and creditors. Irrevocable life insurance trust (ILIT) A trust that owns life insurance and can't be changed or revoked by its creator, keeping the death benefit out of the insured's taxable estate. Gift tax annual exclusion The amount you can give any one person each year without filing a gift tax return or using lifetime exemption: $19,000 per recipient in 2026, per the IRS. Executor The person named in a will, or appointed by a court, to settle a deceased person's estate: gather assets, pay debts and taxes, and distribute what remains.

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Cross-purchase vs entity-redemption buy-sell plans Compare cross-purchase and entity-redemption buy-sell plans on policies, cost, basis step-up, creditors and estate tax, including the 2024 Connelly ruling. Why naming your estate as beneficiary is usually a mistake Naming your estate as life insurance beneficiary sends the money through probate and exposes it to creditors. When it still makes sense, and the alternatives. Estate liquidity: paying taxes and debts without a fire sale Why estates rich in property but short on cash are forced to sell, what bills come due after a death, and how life insurance and other tools supply the cash. Is life insurance taxable? Death benefits are usually free of federal income tax, but interest, estate tax, policy sales, cash value gains and some transfers can create a tax bill. Leaving life insurance to charity Three ways to give life insurance to a charity: name it beneficiary, donate the policy, or buy a new one. How each works and the tax rules. Life insurance and the federal estate tax Death benefits are included in your taxable estate if you own the policy or it pays your estate (IRC §2042). How the 2026 $15 million exemption applies.

Related tools

Estate tax exposure check Estimates 2026 federal estate tax on your assets and life insurance, and shows how much of it comes from policies you own.