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Key takeaways
- Estate tax is paid by the estate. Inheritance tax is paid by the beneficiary.
- The federal estate tax exemption is $15M per individual for 2026 and was made permanent by the One Big Beautiful Bill Act (signed July 4, 2025), indexed for inflation thereafter.
- Twelve states plus DC have their own estate tax with much lower exemption thresholds; six states (IA, KY, MD, NE, NJ, PA) impose inheritance tax with rates that depend on the beneficiary's relationship to the decedent.
- The annual gift exclusion is $19,000 per recipient for 2026 (unchanged from 2025).
How Olomon thinks about this
Estate-tax planning depends on knowing the gross estate — every asset, debt, life-insurance death benefit, retirement account, and business interest. Olomon assembles that picture continuously, so when an estate attorney or CPA is modeling exemptions, gifting strategies, or trust funding, they aren't starting from a stale balance sheet.
Quick facts
- Federal estate tax exemption2026$15,000,000 per individual[1]
- Top federal estate tax rate202640%[1]
- Annual gift exclusion2026$19,000 per recipient[1]
- Permanence2026Made permanent by OBBBA (July 4, 2025)[3]
- States with their own estate tax202612 states + DC
- States with inheritance tax20266 states (IA, KY, MD, NE, NJ, PA)
In-depth definition
Two distinct taxes get conflated. Federal estate tax is owed by the estate before assets are distributed, and only applies to the portion above the unified gift and estate tax exemption — set at $15,000,000 per individual for decedents dying in 2026[1] and made permanent by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.[3] State estate taxes, where they exist, can apply at much lower thresholds. Inheritance tax is conceptually different: it's owed by the recipient, varies by relationship to the decedent, and is imposed by only a handful of states.
The top federal estate tax rate is 40%[1], applied to the portion of a taxable estate above the exemption. Federal estate-tax returns are filed on IRS Form 706.[2] Before OBBBA, the exemption was scheduled to drop by roughly half at the end of 2025; OBBBA eliminated that sunset and indexed the new $15M figure for inflation in future years.[3]
Frequently asked questions
Most won't. The federal exemption is $15M per individual for 2026 — only the portion of the estate above the exemption is taxed at the federal level. State estate or inheritance taxes can still apply at much lower levels depending on where you live.
Yes. The OBBBA, signed July 4, 2025, raised the basic exclusion amount to $15,000,000 per individual for decedents dying in 2026 and eliminated the post-2025 sunset that would have cut the exemption roughly in half. The new amount is indexed for inflation in future years.
Generally yes, if you owned the policy at death. Irrevocable life insurance trusts (ILITs) are often used to remove policies from the taxable estate — a strategy worth discussing with an estate attorney.
Sources
Primary, authoritative references.
- 1
Internal Revenue Service (IRS)
IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful BillCited for: $15M 2026 basic exclusion amount; 40% top rate
- 2
Internal Revenue Service (IRS)
Instructions for Form 706Cited for: Estate tax filing requirements and computation
- 3
Internal Revenue Service (IRS)
What's new — Estate and Gift TaxCited for: OBBBA §2010(c)(3) amendment; year-of-death exclusion table
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Related terms
More from Estate & Legacy Planning.
Cite this page
APAOlomon Editorial Team. (2026). Estate tax / inheritance tax. Olomon Financial Glossary. https://olomon.com/financial-glossary/estate-tax-inheritance-tax