The federal estate tax is a tax on the transfer of a deceased person's taxable estate. Only estates exceeding the estate tax exemption are subject to the federal estate tax.
2025 exemption: $13.99 million per person (indexed for inflation). Married couples can effectively shelter up to $27.98 million using portability.
Tax rate: Up to 40% on taxable estate value above the exemption.
What's included in the taxable estate: - All property owned by the decedent at death (sole, joint tenancy, community property share). - Life insurance proceeds if the decedent held "incidents of ownership." - Assets in a revocable trust. - Certain gifts made within 3 years of death. - Retirement accounts (IRAs, 401(k)s — included at full value, since income tax still due on withdrawals).
What's excluded (deductions): - Unlimited marital deduction: Assets passing to a U.S. citizen surviving spouse are 100% deductible. - Charitable deduction: Gifts to qualified charities. - Debts, mortgages, funeral expenses, executor fees.
Portability: The unused estate tax exemption of a deceased spouse can be transferred to the surviving spouse if an estate tax return is timely filed, effectively doubling the surviving spouse's exemption.
TCJA sunset (2025): The current doubled exemption is scheduled to revert to ~$7M per person (indexed) on January 1, 2026, unless Congress acts — a major planning consideration.
> Exam tip: Estate tax is only relevant for very high net worth individuals ($13.99M+). Know the unlimited marital deduction, portability, and the potential TCJA sunset — all tested on CFP® and EA Part 2. Stepped-up basis (IRC §1014) is the key income tax benefit for heirs.