The exemption is the value of transfers that escape federal estate tax entirely. Sit below it and the estate owes nothing federally; exceed it and tax applies only to the excess. Because the figure is indexed and has been changed repeatedly by legislation, any number you find online has a shelf life. Verify the current amount with the IRS.
What makes the exemption a planning subject rather than a piece of trivia is that it is not permanent. Portions of current law carry expiration dates, and Congress has raised and lowered the threshold more than once. Families whose estates sit anywhere near the line are effectively planning against a moving target, which argues for structures that stay useful whichever way the number moves.
Married couples get an extra layer. Portability allows a surviving spouse to claim the unused portion of a deceased spouse's exemption, but it is not automatic — it generally requires a timely estate tax return to be filed for the first spouse to die, even when no tax is owed. Skipping that filing because there was nothing to pay is a costly and fairly common oversight.
Then there is the state layer. Several states set their own exemption well below the federal one, so an estate can be comfortably exempt federally and still face a state bill. Some states instead tax inheritances at the recipient's end. Whether any of this reaches you turns on state law, which changes.
Frequently asked
- If my estate is under the exemption, is there anything left to do?
- Plenty, because avoiding estate tax was never the main job of an estate plan. Naming guardians, avoiding probate, appointing a decision-maker for incapacity, and making sure your family can actually locate and access what you own are all live issues regardless of size. For most households the tax question resolves quickly and the access question does not, which is where the real work sits.
- Should I give assets away now in case the exemption drops?
- It is a legitimate strategy for estates near the threshold, but not a free one. Gifted assets generally carry your original cost basis to the recipient, whereas assets held until death typically get a basis step-up. Give away something highly appreciated and you may hand your heirs a capital gains problem to avoid an estate tax that might never have applied. This is a calculation, not a rule of thumb, and it needs a professional.
- Does my spouse's unused exemption transfer automatically?
- No. Portability has to be elected, and the election is made on a federal estate tax return filed for the first spouse's death within the required window. Families often skip that filing because the estate was clearly under the threshold and no tax was due, then discover years later that the surviving spouse's estate has grown and the transferable amount was forfeited. Ask your advisor about it at the time, not afterward.