What are the key elements to the federal estate tax?
The federal estate tax is a tax on the transfer of wealth at death. Its younger brother, the federal gift tax, is a tax on the transfer of wealth during one’s lifetime. The federal estate tax has been part of American law since 1916. The gift tax was added later, in 1931.
Since 1981, the law has allowed a specific amount of a person’s estate to pass at death free of any estate tax. This is called the unified credit. Those same laws allow an individual to leave an unlimited amount free of any estate tax to a spouse who is also a U.S. citizen. This is called the marital deduction.
On December 2017, Congress passed and President Trump signed the Tax Cut and Jobs Act of 2017 ("TCJA"). One of the many provisions of this far-reaching legislation was to increase the unified credit amount (i.e., the per-person exemption) from $5 million to $10 million. The $10 million amount is indexed for inflation occurring after 2011. Thus for 2025, the per-person exemption is $13.99 million, although this exemption amount is scheduled to be reduced in half on January 1, 2026 unless TCJA is extended or made permanent before then. Using "portability." which was added to the estate tax laws in 2013, a married couple with minimal tax planning can pass almost $28 million to the next generation free of estate tax.
The per-person exemption is so large that estate tax concerns are non-existent for the vast majority of persons who are considering the transfer of their wealth during their lives or upon their deaths.