# Estate tax / inheritance tax

Canonical URL: https://olomon.com/financial-glossary/estate-tax-inheritance-tax
Markdown twin: https://olomon.com/financial-glossary/estate-tax-inheritance-tax/llms.txt
Category: Estate & Legacy Planning (https://olomon.com/financial-glossary/categories/estate-legacy-planning)
Also known as: Death tax, Federal estate tax
Last updated: 2026-05-03

## Definition

Estate tax is a tax on the transfer of a deceased person's net taxable estate; the federal estate tax applies only above a high lifetime exemption ($15,000,000 per individual for decedents dying in 2026, made permanent by the One Big Beautiful Bill Act of 2025 and indexed for inflation). Inheritance tax is a separate, state-level tax paid by individual beneficiaries on what they receive — levied by only a handful of states.

## 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

_The following section is Olomon's first-party perspective, informed by our work building a financial system of record. It is intentionally separated from the neutral definitional content above._

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

| Fact | Value | As of |
|------|-------|-------|
| Federal estate tax exemption | $15,000,000 per individual | 2026 |
| Top federal estate tax rate | 40% | 2026 |
| Annual gift exclusion | $19,000 per recipient | 2026 |
| Permanence | Made permanent by OBBBA (July 4, 2025) | 2026 |
| States with their own estate tax | 12 states + DC | 2026 |
| States with inheritance tax | 6 states (IA, KY, MD, NE, NJ, PA) | 2026 |

## 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](https://olomon.com/financial-glossary/inflation) in future years.[3]

## Frequently asked questions

### Will my heirs owe federal estate tax?

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.

### Did the One Big Beautiful Bill Act change the estate tax exemption?

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.

### Does life insurance count toward the taxable estate?

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

1. [IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill) — Internal Revenue Service (IRS). Cited for: $15M 2026 basic exclusion amount; 40% top rate.
2. [Instructions for Form 706](https://www.irs.gov/instructions/i706) — Internal Revenue Service (IRS). Cited for: Estate tax filing requirements and computation.
3. [What's new — Estate and Gift Tax](https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax) — Internal Revenue Service (IRS). Cited for: OBBBA §2010(c)(3) amendment; year-of-death exclusion table.

## Related terms

- [Estate plan](https://olomon.com/financial-glossary/estate-plan)
- [Wealth transfer](https://olomon.com/financial-glossary/wealth-transfer)
- [Living trust / revocable trust](https://olomon.com/financial-glossary/living-trust-revocable-trust)

## Cite this page

Olomon Editorial Team. (2026). Estate tax / inheritance tax. Olomon Financial Glossary. https://olomon.com/financial-glossary/estate-tax-inheritance-tax

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