Estate Planning
Wills & Trusts
Estate Administration
Wills & Trusts
Estate Administration
The Federal Estate Tax
The federal estate tax and gift tax are coordinated systems for taxing transfers of wealth during life and at death. For 2026, the federal estate and gift tax basic exclusion is $15 million per person, and the highest federal estate and gift tax rate is 40%. Taxable lifetime gifts generally reduce the exclusion remaining at death.
What is Included in the Federal Gross Estate?
The federal gross estate may include cash, securities, real estate, retirement assets, business interests, certain jointly held property, life insurance proceeds, and property transferred during life where the decedent retained specified interests or powers. The amount included depends on the actual ownership, beneficiary arrangements, and applicable inclusion rules; not every asset outside the probate estate is excluded from estate tax.
Life insurance is an important example. Death benefits can be included when the proceeds are payable to the insured’s estate or the insured retained incidents of ownership. An irrevocable life insurance trust may help keep policy proceeds outside the insured’s estate when properly established and administered, but transfers of existing policies and retained powers require separate review.
How Does the Federal Gift Tax Annual Exclusion Work?
In 2026, an individual generally may give up to $19,000 per recipient in qualifying present-interest gifts without using lifetime estate and gift tax exclusion. Married couples may, when the gift-splitting rules are satisfied, generally treat up to $38,000 per recipient as annual-exclusion gifts. Special rules apply to gifts in trust, and a federal gift tax return may be required even when no gift tax is immediately payable.
For affluent families, the question is often whether an asset should be transferred now, left to beneficiaries at death, or placed into an appropriately designed trust. The answer depends on the potential estate tax savings, anticipated appreciation, income tax basis, the family’s non-tax goals, and how much flexibility the donor needs to retain.
New York has a separate estate tax with a lower basic exclusion amount: $7.35 million for deaths in 2026. Because New York does not allow portability of a deceased spouse’s unused state exclusion, federal estate planning alone may not adequately address the family’s overall tax exposure.
Deductions from the Gross Estate
A decedent’s taxable estate is determined by subtracting from the value of the gross estate any deductions provided for in the Code.
Marital and charitable transfers: Transfers to a surviving spouse or to charity generally are deductible for estate tax purposes. The effect of the marital and charitable deductions generally is to remove assets transferred to a surviving spouse or to charity from the estate tax base.
State death taxes: An estate tax deduction is permitted for death taxes (e.g., any estate, inheritance, legacy, or succession taxes) actually paid to any State or the District of Columbia, in respect of property included in the gross estate of the decedent.
Miscellaneous deductions: A deduction is available for funeral expenses, estate administration expenses, and claims against the estate, including certain taxes. A deduction also is available for uninsured casualty and theft losses incurred during the settlement of the estate.
Credits against tax
After accounting for allowable deductions, a gross amount of estate tax is computed. Estate tax liability is then determined by subtracting allowable credits from the gross estate tax.
Unified Credit – The New 2018 Federal Estate Tax Rules
The new rules double the Federal estate, gift and generation-skipping transfer (“GST”) tax exemption amounts from $5 million to $10 million per individual, with additional inflation adjustments as under prior law. The increased, inflation-adjusted exemption amounts – approximately $11.2 million for an individual, or a combined $22.4 million for a married couple – are effective for estates of decedents dying, and gifts made, after December 31, 2017 (with potential future inflation adjustments for 2019 and subsequent tax years), but are scheduled to expire on December 31, 2025, after which the relevant Federal estate, gift and GST tax exemption amounts would revert to the prior $5 million amounts, plus the relevant inflation adjustments.
Because the doubling of the estate and gift tax exclusion amount will expire for
decedents dying and gifts made after December 31, 2025, the next several years present an opportunity for wealthy individuals and married couples to make large gifts, including those that leverage the amount of the available exclusion, such as those to grantor retained annuity trusts (GRATs) and irrevocable life insurance trusts (ILIT’s).
Other Credits
Estate tax credits also are allowed for: (1) gift tax paid on certain pre-1977 gifts (before the estate and gift tax computations were integrated); (2) estate tax paid on certain prior transfers (to limit the estate tax burden when estate tax is imposed on transfers of the same property in two estates by reason of deaths in rapid succession); and (3) certain foreign death taxes paid (generally, where the property is situated in a foreign country but included in the decedent’s U.S. gross estate).
Provisions Affecting Small and Family-owned Businesses and Farms
Special-use valuation
An executor can elect to value for estate tax purposes certain “qualified real property” used in farming or another qualifying closely-held trade or business at its current-use value, rather than its fair market value.
If, after a special-use valuation election is made, the heir who acquired the real property ceases to use it in its qualified use within 10 years of the decedent’s death, an additional estate tax is imposed to recapture the entire estate-tax benefit of the special-use valuation.
Installment Payment of Estate Tax for Closely Held Businesses
Under present law, the estate tax generally is due within nine months of a decedent’s death. However, an executor generally may elect to pay estate tax attributable to an interest in a closely held business in two or more installments (but no more than 10). An estate is eligible for payment of estate tax in installments if the value of the decedent’s interest in a closely held business exceeds percent of the decedent’s adjusted gross estate (i.e., the gross estate less certain deductions). If the election is made, the estate may defer payment of principal and pay only interest for the first five years, followed by up to 10 annual installments of principal and interest.
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