First, I want to answer the real broad question.
What is estate tax?
It's also known as the death tax,
and it's a pretty considerable federal tax at the rate of 40%
when an estate is valued above a specific limit.
And it typically changes each year based on inflation.
The tax doesn't apply to a surviving U.S.
citizen spouse.
It does apply to estates of non-spousal areas.
Like children,
siblings,
or other family members.
If the value of the estate after death and the
formal valuation is completed is under the limit,
there's no federal estate tax or death tax.
And because the current estate tax exemption is so high,
right now for married couples,
it's about $28 million in 2025. Less
than 1% of estates would actually pay
any federal estate tax at all.
However,
with the sunset or the sharp reduction to the
exemption expected next year in January of 2026,
the number of estates that could be taxed at that 40% federal rate
goes way up.
You'll notice that there's a big question mark
on the year 2026 in the chart on the slide here.
And that's because there are uncertainties
about whether the current estate tax exemption
is going to be extended.
It's currently part of the tax cuts and job act,
which was initially passed during President Trump's first term
in office back in 2017. And while the administration has said
publicly that they want the tax cuts and job act extended,
it's a complex situation.
It needs to be negotiated.
And it's part of other budgeting efforts as well.
So for planning purposes,
we should use the expectation that the
estate tax exemption is going to drop very sharply.
