Personal Finance & Estate › Income, gift, estate & real-estate taxes
Federal estate & gift tax (unified; California has none)
Estate tax since 1916· Tax rule
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
One federal tax, at 40%, on wealth transferred above $15 million per person, whether given during life or at death.
See it on the Personal Finance & Estate map →How it works
Gifts and estates share one lifetime exemption: $15 million per person in 2026, indexed for inflation, so $30 million for a married couple. Each year $19,000 per recipient is excluded entirely. Transfers to a US-citizen spouse or to charity are unlimited and tax-free. Above the exemption the rate is 40%. The estate return (Form 706) is due nine months after death. California repealed its inheritance and gift taxes in 1982 and has had no estate tax since 2005.
Why it matters for you
Few estates owe it now, but large real-estate holdings can cross the line, and the same rules drive trusts, gifting and step-up decisions.
Think of it like
Like one lifetime credit line shared between gifts while alive and the estate at death.
Rules, limits and sources (2026)
The Revenue Act of 1916 created the estate tax; the 1976 Tax Reform Act unified it with the 1932 gift tax; IRS data show only a few thousand taxable estates a year.
Watch out for
The 2025 law calls the $15 million exemption permanent, but a future Congress could lower it; that uncertainty shapes how much to give now.
Inside this (4)
Connections (7)
▸Estate & lifetime gift exemption ($15M in 2026) shelters most estates from Federal estate & gift tax (unified; California has none)Law or rule (2026)
How they connect
The federal estate and gift tax charges 40% on transfers above the exemption. At $15 million per person, $30 million per couple, the exemption removes all but a tiny share of estates, so the tax mainly reaches large, often illiquid estates such as business or real-estate holdings.
When it applies
The exemption rose from $600,000 in the 1990s to $5 million in 2011, $11.18 million in 2018 and $15 million in 2026.
The rule
IRS Statistics of Income data show only a few thousand taxable estate returns a year, well under 1% of deaths.
Watch out for
The exemption has changed often; whether it stays at this level, and how heirs pay tax on illiquid assets, remain open questions.
▸Gift tax annual exclusion ($19,000 in 2026) is the yearly free pass in Federal estate & gift tax (unified; California has none)Law or rule (2026)
How they connect
Under the unified estate and gift tax, every taxable gift uses up lifetime exemption. The annual exclusion is the carve-out: gifts up to $19,000 per recipient each year don't count at all and never touch the $15 million exemption. Gifts above it go on Form 709 and reduce the exemption, usually with no tax due.
When it applies
Congress set the exclusion at $5,000 when it restored the gift tax in 1932; it was $3,000 for decades, then $10,000 from 1982.
The rule
IRC Sec. 2503(b) defines the exclusion; Sec. 2505 applies taxable gifts against the unified credit.
Watch out for
With so few estates taxed, some argue the exclusion now matters less for tax than for Medi-Cal and family dynamics.
▸Step-up in basis at death is the income-tax side of Federal estate & gift tax (unified; California has none)Law or rule (2026)
How they connect
The two systems are linked by inclusion: property counted in your taxable estate, whether or not tax is owed, gets a stepped-up basis. Property given away during life avoids estate tax but keeps your old basis. So moving assets out of an estate trades estate-tax savings for heirs' future capital-gains tax.
When it applies
Both date from the same era: the estate tax in 1916, the step-up in 1921, with basis tied to estate value.
The rule
IRC Sec. 1014 sets basis at estate-tax value; Sec. 1015 sets carryover basis for gifts; IRS Rev. Rul. 2023-2 confirms the link.
Watch out for
With a $15 million exemption, many families gain more from the step-up than from avoiding estate tax; weighing the two is a judgment call.
▸Generation-skipping transfer (GST) tax is the grandchild layer of Federal estate & gift tax (unified; California has none)Law or rule (2026)
How they connect
Estate and gift tax is meant to hit wealth once per generation. Leaving assets straight to grandchildren would skip a round, so the GST tax adds a second 40% tax on transfers to skip persons beyond the GST exemption. It applies on top of gift or estate tax, with the same rate and a parallel exemption.
When it applies
First enacted in 1976, repealed retroactively, then rebuilt in the Tax Reform Act of 1986.
The rule
Chapter 13 of the IRC (Secs. 2601-2664); Form 709 and Form 706 Schedule R report allocations.
Watch out for
Trusts made before September 1985 are grandfathered, and changing them under state law can trigger GST disputes; allocation rules remain intricate.
▸Irrevocable life insurance trust (ILIT) keeps proceeds out of Federal estate & gift tax (unified; California has none)Law or rule (2026)
How they connect
Life insurance owned by the insured counts in their taxable estate. An ILIT owns the policy instead, so proceeds land outside both spouses' estates. The insured gifts premiums to the trust, usually using annual exclusions through Crummey notices. Transferring an existing policy works only if the insured survives three more years.
When it applies
ILITs grew after the 1954 code's Sec. 2042 based estate inclusion on 'incidents of ownership'; the 1968 Crummey case enabled premium gifts.
The rule
IRC Secs. 2042 and 2035; Crummey v. Commissioner (9th Cir. 1968) upheld gifts subject to withdrawal rights.
Watch out for
With a $15 million exemption, many older ILITs may no longer save estate tax; whether to keep, modify or unwind them is debated.
▸Revocable living trust does not by itself avoid Federal estate & gift tax (unified; California has none)Watch out
How they connect
A revocable trust avoids probate, not estate tax: because you can take the assets back, they count in your taxable estate. Couples above the exemption need a bypass trust, a portability election or irrevocable planning. Trap: assuming 'we have a trust' means taxes are handled. Protection: have the drafting attorney review it as exemptions change.
When it applies
A common misunderstanding; before portability arrived in 2011, many couples' trusts split into A/B shares at the first death to use both exemptions.
How sure?
IRC Secs. 2036 and 2038 pull revocable-trust assets into the taxable estate; Form 706 instructions treat them as the decedent's property.
Watch out for
With $15 million exemptions, whether older A/B trusts still make sense, given the second step-up they forfeit, is debated.
▸Survivorship (second-to-die) life insurance pays out when a couple owes Federal estate & gift tax (unified; California has none)Standard practice
How they connect
Spouses can leave each other unlimited amounts tax-free, so federal estate tax usually comes due at the second death, nine months later, at 40% above the exemption. A second-to-die policy pays exactly then, giving heirs cash so they don't have to sell a building or business under pressure.
When it applies
Survivorship policies spread in the 1980s, after the 1981 tax law created the unlimited marital deduction.
How sure?
IRC Sec. 2056 (marital deduction), Sec. 2001 (40% top rate) and Sec. 6075 (nine-month deadline); the 2025 law set a $15 million per-person exemption for 2026.
Watch out for
Portability lets a survivor use a late spouse's unused exemption, so fewer couples owe tax; whether a future Congress lowers exemptions is unknown.