Ashford International Law P.C.

The federal estate tax applies to the transfer of property at death by a United States citizen or a person domiciled in the United States, on the worldwide estate, at a top rate of 40 percent above a basic exclusion amount of $15,000,000 for 2026. It is accompanied by the generation-skipping transfer tax, by the estate and inheritance taxes of several states and by income tax rules that change the basis of inherited property. This page sets out those rules as of September 2026. The estate tax on non-citizens domiciled abroad is described on the page on estates of nonresident non-US citizens, and the overall framework on the page on gift and death-related taxes.

Summary

1. The basic exclusion amount is $15,000,000 for deaths in 2026. It is indexed for inflation from 2027 and has no scheduled expiration. Taxable gifts made during life reduce the amount available at death.
2. Property passing to a surviving spouse who is a United States citizen, and property passing to charity, is deducted without limit. Property passing to a non-citizen spouse qualifies only through a qualified domestic trust or treaty relief.
3. The unused exclusion of the first spouse to die can be added to the survivor’s exclusion only if the executor files an estate tax return and elects portability.
4. Form 706 is due nine months after death. Twelve states and the District of Columbia levy their own estate tax, several with exemptions far below the federal amount, and five states levy an inheritance tax.
5. Inherited property generally receives a new income tax basis equal to its value at death, but retirement accounts and other income in respect of a decedent do not.

Part I. Who is taxed

The estate tax applies to every decedent who was a citizen or resident of the United States (IRC § 2001(a)), a resident being a person domiciled in the United States with no definite present intention of leaving (Treas. Reg. § 20.0-1(b)(1)). A non-citizen domiciliary is taxed as a citizen, subject to the marital deduction rules in Part III. A non-citizen domiciled abroad is taxed only on property located in the United States. Where an estate tax convention applies, it may assign a single fiscal domicile and override these rules.

Part II. The gross estate

The gross estate comprises all property in which the decedent had an interest at death, wherever located (IRC §§ 2031 and 2033), and several categories of property that the decedent did not own outright:

1. property transferred during life with a retained right to its income or enjoyment, or subject to a retained power to revoke, alter or amend the transfer (IRC §§ 2036 to 2038), which brings the assets of a revocable trust into the gross estate;
2. annuities and retirement accounts payable to a beneficiary (IRC § 2039);
3. jointly held property with a right of survivorship, in full except to the extent the survivor’s contribution is proven; between spouses, one-half is included, but only where the surviving spouse is a United States citizen (IRC §§ 2040 and 2056(d)(1)(B));
4. property subject to a general power of appointment held by the decedent (IRC § 2041);
5. life insurance on the decedent’s life if the decedent held any incident of ownership or the proceeds are payable to the estate (IRC § 2042);
6. life insurance transferred within three years of death, and the gift tax paid on gifts made within three years of death (IRC § 2035).

Property is valued at fair market value at the date of death, or, where the election reduces both the gross estate and the tax, six months later (IRC § 2032). Farm and business real estate may be valued at its current use rather than its highest and best use, with a maximum reduction of $1,460,000 for 2026 (IRC § 2032A).

Part III. Deductions and the non-citizen spouse

The taxable estate is the gross estate less funeral and administration expenses, debts and mortgages (IRC § 2053), casualty losses during administration (IRC § 2054), transfers to charity (IRC § 2055), transfers to the surviving spouse (IRC § 2056) and state death taxes paid (IRC § 2058). The marital deduction is unlimited in amount and extends to a trust for the spouse’s lifetime benefit if the executor makes the qualified terminable interest property election.

Where the surviving spouse is not a United States citizen, the marital deduction is denied (IRC § 2056(d)(1)) unless the property passes to a qualified domestic trust with at least one United States trustee (IRC §§ 2056(d)(2) and 2056A), or the spouse becomes a citizen before the return is filed, having remained a United States resident since the death (IRC § 2056(d)(4)). A qualified domestic trust only defers the tax: principal distributions, other than for hardship, and the property remaining at the spouse’s death are taxed as part of the first spouse’s estate. During life, gifts to a non-citizen spouse are excluded only up to $194,000 for 2026 (IRC § 2523(i)). Several estate tax conventions, including those with Germany, France and the United Kingdom, provide marital relief without a qualified domestic trust.

Part IV. Exclusion, rates and portability

The tax is computed on the taxable estate plus the adjusted taxable gifts made after 1976, at rates rising from 18 percent to 40 percent on amounts above $1,000,000 (IRC § 2001(b) and (c)). A unified credit equal to the tax on the applicable exclusion amount is then subtracted (IRC § 2010). In practice, the tax is 40 percent of the amount by which the estate and prior taxable gifts exceed the exclusion. Gifts made while a higher exclusion applied are not taxed retroactively if the exclusion is later reduced (Treas. Reg. § 20.2010-1(c)).

Portability allows a surviving spouse to add the deceased spousal unused exclusion amount to the survivor’s own exclusion (IRC § 2010(c)(4)). The election is made on a complete and timely Form 706, even where no tax is due. Estates not otherwise required to file may make the election within five years of death under Rev. Proc. 2022-32. The following table shows the effect for a married couple, both citizens, whose combined estate of $30,000,000 passes entirely to the survivor at the first death.

Assumes no lifetime taxable gifts, no change in values and the 2026 exclusion at both deaths. Portability is not available to the estate of a non-citizen domiciled abroad, and the GST exemption is not portable.

Foreign death tax on property located abroad is credited against the estate tax (IRC § 2014), subject to any different allocation under a convention.

Part V. Returns, payment and liability

An executor must file Form 706 where the gross estate and the adjusted taxable gifts exceed the basic exclusion amount (IRC § 6018(a)), and must also file it to elect portability. The return and the tax are due nine months after death (IRC §§ 6075 and 6151). An automatic six-month extension of time to file is available on Form 4768, but it does not extend the time to pay. Payment may be extended for reasonable cause for up to ten years (IRC § 6161). Where a closely held business exceeds 35 percent of the adjusted gross estate, the tax attributable to it may be paid over up to fourteen years, with interest only for the first five and interest at 2 percent on the tax attributable to the first $1,940,000 of the business’s taxable value (IRC §§ 6166 and 6601(j)).

The tax is secured by a ten-year lien on the gross estate (IRC § 6324(a)), and a personal representative who distributes before paying federal taxes may be personally liable (31 U.S.C. § 3713(b)). Executors therefore wait for an estate tax closing letter, for which the Internal Revenue Service charges $56, or an account transcript showing acceptance of the return. Where Form 706 is required, the executor must also report the estate tax values to the Internal Revenue Service and to each beneficiary on Form 8971 within 30 days after the return is filed or due, whichever is earlier, and beneficiaries must use those values as their income tax basis (IRC §§ 1014(f) and 6035; T.D. 9991 of September 17, 2024).

Part VI. The generation-skipping transfer tax

The generation-skipping transfer tax applies to three kinds of transfers to a skip person, meaning a grandchild or a more remote descendant, or an unrelated person more than 37.5 years younger than the transferor (IRC §§ 2613 and 2651(d)): a direct skip, such as a bequest to a grandchild; a taxable termination, such as the end of a trust interest after which only grandchildren remain; and a taxable distribution from a trust to a grandchild (IRC §§ 2611 and 2612). A grandchild whose parent, the transferor’s child, has already died is treated as a child (IRC § 2651(e)).

The tax is imposed at the top estate tax rate multiplied by the inclusion ratio, which depends on how much GST exemption has been allocated to the transfer (IRC §§ 2641 and 2642). The exemption of $15,000,000 for 2026 is allocated automatically to direct skips and to certain trusts, and may be allocated by election on Form 709 or Form 706 (IRC § 2632). The exemption is not portable, and a trust to which exemption has been fully allocated remains exempt for its entire duration.

Part VII. State estate and inheritance taxes

States tax the estates of their domiciliaries and the real estate and tangible property located within their borders. State exemptions are frequently lower than the federal amount, several states disregard portability, and New York withdraws its exemption entirely for estates exceeding 105 percent of it.

Figures from the revenue departments and statutes of the states concerned, as of September 2026.

Inheritance taxes are levied on each heir according to the heir’s relationship to the decedent. Kentucky exempts spouses, parents, children, grandchildren and siblings, and taxes other heirs at up to 16 percent. Maryland taxes heirs outside the close family at 10 percent. Nebraska exempts the surviving spouse and heirs under 22, and taxes close relatives at 1 percent, remote relatives at 11 percent and others at 15 percent above exemptions of $100,000, $40,000 and $25,000. New Jersey exempts spouses, children, grandchildren, parents and charities, and taxes siblings, children-in-law and unrelated heirs at up to 16 percent. Pennsylvania exempts spouses and transfers between a parent and a child aged 21 or younger, and taxes lineal heirs at 4.5 percent, siblings at 12 percent and others at 15 percent. Iowa’s inheritance tax does not apply to deaths on or after January 1, 2025.

Part VIII. Income tax at death

Property acquired from a decedent generally takes an income tax basis equal to its fair market value at death, or at the alternate valuation date (IRC § 1014(a)). Gains accrued during the decedent’s lifetime therefore escape income tax. In a community property state, both halves of the community property receive the new basis if at least one-half is included in the gross estate (IRC § 1014(b)(6)). Two exceptions matter in practice. Income in respect of a decedent, such as a retirement account, deferred compensation or an installment note, receives no new basis and is taxed to the recipient when collected, with an income tax deduction for the estate tax attributable to it (IRC §§ 691 and 1014(c)). Appreciated property given to the decedent within one year of death and passing back to the donor keeps the decedent’s basis (IRC § 1014(e)).

A final income tax return is filed for the year of death. The estate is a separate taxpayer and files Form 1041 if its gross income is $600 or more or any beneficiary is a nonresident alien; a revocable trust may elect to be taxed as part of the estate (IRC § 645). Estates reach the highest bracket at a small fraction of the income at which individuals do, so the timing of distributions matters. Distributions to heirs abroad are subject to withholding, as described on the page on non-US beneficiaries.

Part IX. Practical steps

1. Establish the decedent’s citizenship and domicile and any applicable estate tax convention.
2. Assemble the gross estate, including trust assets, retirement accounts, life insurance and jointly held property, with date-of-death valuations.
3. Where the surviving spouse is not a citizen, decide on a qualified domestic trust or treaty relief before the return is due.
4. File Form 706 where required, and in every married estate consider filing to elect portability.
5. Allocate GST exemption to trusts for grandchildren.
6. Identify the state estate and inheritance taxes of the domicile and of each state where real estate is located.
7. Report basis on Form 8971, and obtain a closing letter or account transcript before final distributions.

Conclusion

With an exclusion of $15,000,000, the federal estate tax affects a limited number of estates, but those estates are taxed at 40 percent, often alongside state taxes that begin at much lower amounts. For families with a non-citizen spouse, heirs abroad or assets in several countries, the marital deduction rules and the estate tax conventions determine the result as much as the rates.

How the firm helps

Ashford International Law PC prepares federal estate and gift tax returns, advises executors on valuation, portability, qualified domestic trusts, GST allocation and state death taxes, and coordinates the American estate tax with foreign inheritance taxes under the applicable conventions. Related material is available on the firm’s pages on gift and death-related taxes, gift planning, non-US decedents, estate planning for non-US citizens, US decedents with non-US assets and estate settlements. Defined terms are collected in the Topics A-Z.

This page is intended for general educational purposes and does not constitute legal or tax advice, nor does it create an attorney-client relationship. The matters described depend on the specific facts, the countries and states concerned, and the law in effect at the relevant time. Statuses and figures are stated as of September 2026 and must be confirmed before any decision.