The Internal Revenue Service published Revenue Procedure 2025-32 in October 2025, carrying the inflation adjustments for tax year 2026 and the amendments made by the One, Big, Beautiful Bill. Two figures in it decide whether federal estate tax is your problem.
“Estates of decedents who die during 2026 have a basic exclusion amount of $15,000,000.” And: “For tax year 2026, the annual exclusion for gifts remains at $19,000.”
A married couple who file a return to preserve the first spouse’s unused exclusion have two of them. That puts the combined figure at $30,000,000 before a dollar of federal estate tax is owed.
What changed, and what stopped changing
The exemption doubled under the 2017 tax act and was written to fall back to roughly half its level after 2025. For eight years, estate planning ran against that clock. Families with estates in the $10,000,000 to $25,000,000 range were told to use the exemption before it disappeared, and a large amount of gifting, trust funding and insurance was arranged around a deadline.
The One, Big, Beautiful Bill removed the deadline. The higher exemption is permanent, indexed for inflation, and no longer scheduled to sunset. Plans built around a use-it-or-lose-it date now need a second look, because the reason for the urgency is gone.
What did not change is the rate. Above the exclusion, the top federal estate tax rate is 40%. It reaches that top bracket quickly, so an estate that exceeds the exclusion by a meaningful amount is not looking at a modest bill.
How many estates actually pay it?
Very few. Even before the exemption was raised, federal estate tax returns were filed by a small fraction of a percent of decedents, and a smaller fraction still owed anything. At $15,000,000 per person the population that owes federal estate tax is measured in thousands of estates a year, not millions.
That is the honest answer to the question most people are really asking. If your total estate, counting the house, the retirement accounts, the business and any life insurance you own on yourself, is not within reach of $15,000,000, the federal estate tax is not the thing to plan against.
What is counted in the gross estate?
More than people expect, which is why the arithmetic is worth doing rather than guessing.
- Real property, at fair market value on the date of death
- Bank and brokerage accounts
- Retirement accounts, including traditional IRAs and 401(k) balances
- A closely held business interest
- Life insurance proceeds, where the decedent held incidents of ownership in the policy at death, under Internal Revenue Code section 2042
- Taxable gifts made during life, added back for the purpose of computing the tax
- Property held in a revocable living trust
The life insurance line is the one that catches families. A $3,000,000 policy the insured owned on their own life is a $3,000,000 asset in the gross estate. It is still income tax free to the beneficiary. It is still counted here.
Do the states tax it too?
This is now the live question for many more families than the federal one is.
Twelve states and the District of Columbia impose their own estate tax, and several states impose an inheritance tax paid by the recipient rather than the estate. Maryland does both. State exclusion amounts run far below the federal figure, in some places starting near $1,000,000 and in others in the low millions, and most of them are not indexed the way the federal number is.
That produces a common and unwelcome result. A family with a paid-off house, a retirement account and a life insurance policy can be nowhere near the federal threshold and squarely inside a state one. The federal permanence does nothing for them. Whether your state taxes estates, at what level, and whether it recognizes portability between spouses, are questions for an attorney licensed where you live.
Where life insurance fits
Two roles, and they are different jobs.
Paying the tax. Federal estate tax is due nine months after death, and it is payable in cash. An estate whose value sits in a farm, a building or a family business does not have that cash. Selling the asset under a nine-month deadline is how a family business leaves the family. A policy owned outside the estate delivers cash to the people who need it, on time, without a forced sale.
Equalising an inheritance. When one child works in the business and three do not, the business cannot be split four ways without ruining it. A death benefit sized to the other three shares lets the business pass whole to the child who runs it, and lets the other three receive a comparable amount in cash.
Keeping the policy out of the estate
A policy the insured owns is in the insured’s estate. That is section 2042, and it is why an irrevocable life insurance trust exists. The trust applies for the policy, owns it, pays the premiums and receives the proceeds. The insured holds none of the incidents of ownership, so the death benefit is outside the gross estate and the cash arrives without adding to the tax it was bought to pay.
Timing matters more than people expect. Internal Revenue Code section 2035(a) reaches back where “the decedent made a transfer (by trust or otherwise) of an interest in any property, or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent’s death.” An existing policy gifted into a trust, followed by a death inside three years, is treated as though the gift never happened.
A policy the trust applied for and owned from day one was never in the estate. There is nothing for the three-year rule to reach. Where a trust is going to be used, it goes first and the policy second.
What to do with this
If your estate is nowhere near $15,000,000, the federal number is a fact to file away and the state number is the one to check.
If your estate is within reach of the threshold, the exemption being permanent means you have time you did not have last year, and gifting decisions made under deadline pressure deserve to be reviewed rather than continued out of habit.
If the value of your estate is tied up in something that cannot be sold quickly, the size of the exemption matters less than where the cash comes from in month nine.
Apex writes life insurance across more than 20 carriers, including policies designed to be owned by a trust. We are not attorneys and we do not draft trusts. We work alongside the one who does. If you want the insurance side costed, talk to a member of our team.
Nothing here is tax or legal advice. Talk to your own tax adviser or attorney. No policy is bound until a carrier issues it in writing.
