Understanding Estate Taxes in 2026

A Simple Overview to Help You Plan Ahead

Planning ahead is one of the best ways to limit the amount of taxes your beneficiaries may have to deal with after your death. After all, wouldn’t you rather your money goes to them instead of to the IRS? 

Estate-related taxes can feel overwhelming. Between federal rules, state laws, and different tax rates, it’s easy to get lost in the details. The good news? Most people will never owe federal estate tax.

Still, having a basic understanding of the different types of taxes that may apply can help you make informed decisions.

The following is a simple overview to help explain the most common types of taxes that could affect your estate planning. Tax laws change frequently, however, so you should always consult with an attorney or financial advisor for the most up-to-date guidance.

ESTATE TAX

An estate tax is charged against your estate before any assets can be distributed to beneficiaries. In other words, whatever tax is owed is paid out of the proceeds of the estate first - before your loved ones receive their inheritance.

Federal Exemption Limits:
As of 2026, the federal estate tax applies only to estates valued over $15 million per individual or $30 million for married couples.

That means your beneficiaries won’t owe any federal estate tax if your estate is below the exemption amount. However, anything over that amount gets hit with a hefty 40% tax rate.

Here’s some good news: The federal exemption is indexed to adjust annually each year for inflation, though of course current laws may change in the future.

State Exemption Limits: Even if federal estate tax doesn’t apply to your estate, you could be impacted by a state tax. But only if you live in one of the following states:

Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and District of Columbia.

The exemption limits vary. It can be as low as $1 million if you live in Oregon or as high as $15 million if you live in Connecticut. The tax rates charged also differ greatly. For example:

Washington has the highest rate in the country, varying from 20% to 25%
Oregon has one of the lowest, varying between 10% and 16% 

Because these state exemption thresholds are typically much lower than the federal exemption, estate tax planning is an important consideration for families living in these states.

INHERITANCE TAX

An inheritance tax is different from an estate tax.

While estate tax is paid by the estate before assets are distributed, inheritance tax is paid by the person receiving the inheritance. But, like the estate tax, most people don’t encounter this.

There is no federal inheritance tax, and the only states that impose the tax are:

Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania

Maryland is the one state that has both an estate and inheritance tax. But all these states, including Maryland, often exempt spouses and may reduce or eliminate inheritance taxes for close family members.

GIFT TAX

The gift tax applies to transfers of money or property made while you are still alive.

This tax is imposed on the person making the gift, not on the person receiving it. The tax is, of course, imposed by the IRS. And as for a state-imposed gift tax, there is only one that has that: Connecticut.

So how much can you gift to someone before you get hit with this tax? Well, like the other taxes, there is a threshold amount. Each year the IRS allows you to give a certain amount to others without even needing to file a gift tax return. This is known as the annual gift tax exclusion, and it usually is adjusted each year.

For 2026, that amount is $19,000 per recipient.

So yes - you can give:

$19,000 to one person, $19,000 to another, $19,000 to several people - all within the same year and you don’t have to notify Uncle Sam.

Married couples can combine their exclusions and give up to $38,000 per recipient annually.

If you exceed that amount for someone in a given year, then a gift tax return does have to be filed with the IRS. In most cases, though, this still doesn’t necessarily mean you will owe any tax.

Instead, what happens is the excess amount counts toward the IRS lifetime gift and estate tax exemption. This is currently the same as the federal estate tax exemption noted previously ($15 million per individual and $30 million for married couples).

But what if you win the lottery, and you generously share your winnings with others so much that you end up exceeding the lifetime exemption amount? The IRS will happily charge you on that overage amount based on a rate of somewhere between 18% and 40%.

And if you live in Connecticut? Well, in 2026 they actually raised their exemption to match the federal exemption limit. But, if you do happen to go over that amount, the excess will be hit with a 12% tax fee.

Because of this structure, many people use lifetime gifting strategies as part of their estate planning.

But Wait! There Are Some Gifts That Are Not Subject to Gift Tax

Some transfers are excluded from gift tax regardless of the dollar amount. These include:

Tuition payments made directly to an educational institution
Medical expenses paid directly to a healthcare provider
Gifts to a U.S. citizen spouse or dependent
Donations to qualified charitable organizations
Contributions to political organizations

A New Charitable Deduction Opportunity

Beginning in 2026, new rules allow taxpayers who do not itemize deductions to claim a modest charitable deduction. Under this provision:

Individuals may deduct up to $1,000 in cash donations
Married couples filing jointly may deduct up to $2,000

As can be expected, there are exceptions to these rules. If you are planning a sizeable gift for someone, it’s always best to check ahead with a financial professional for advice.

LAST BUT NOT LEAST: THE GENERATION—SKIPPING TRANSFER TAX

Most people won’t encounter this tax, since it’s part of the same $15 million per individual or $30 million for married couples lifetime gift and estate tax exemption discussed previously.

How to use it appropriately, or if you should use it, is definitely complicated so it’s important to consult a financial professional. The following will give you a general idea of what it is.

This is known as the (GST) Tax. Like the estate and gift tax, it is imposed on the person making the transfer (or their estate). A transfer can be a direct gift, such as cash, or a trust that will distribute income.

It applies to transfers made to a non-relative that is more than 37.5 years younger than the transferor or

Transfers made to a relative that is two or more generations younger than the transferor.
A common example of this would be transferring to a grandchild or great-grandchild.

To avoid the hefty 40% tax, the transferor must apply the GST exemption to a specific person. Taking this exemption reduces the amount that can be used toward your estate and gift tax exemption allowance.

Exclusions: There are instances that shield a transfer from this tax, such as:

Those exclusions outlined for the gift tax
If the transferor’s parent of the grandchild is deceased at the time of the transfer
An irrevocable trust, if set up appropriately

What All This Means for Your Estate Plan

Although federal estate taxes affect only a small percentage of Americans, other taxes - particularly state estate taxes or inheritance taxes - can still impact families.

Understanding these rules can help you make informed decisions about:

Lifetime gifting strategies
Charitable giving
Trust planning
Passing assets directly to future generations

A Final Thought

Estate planning isn’t just about taxes - it’s about making decisions that help protect the people and causes that matter most to you. Even small steps today can make a meaningful difference for your loved ones tomorrow.

You can learn more practical strategies for simplifying your estate planning journey in my book, designed to guide you step-by-step while making estate planning clear and understandable.