Taxation of Estate

The federal estate tax under IRC §2001, “Imposition and rate of tax” is a 40% levy on wealth transferred at death, but it only bites once your assets exceed the lifetime exemption. Thanks to the permanent adjustments enacted by the OBBBA, this threshold stands at $15 million per individual for 2026 (potentially $30 million for a married couple). While California does not impose a state-level death tax, seventeen other jurisdictions—including New York, Massachusetts, and Oregon—levy their own estate or inheritance taxes, often with thresholds as low as $1 million. Those are two different taxes with two different payers, and five states charge the second one at any estate size at all (section “State Inheritance Tax: The One That Ignores Your Net Worth”). Minimizing this exposure relies on lifetime gifting under IRC §2503, funding irrevocable trusts, and applying the unlimited marital deduction under IRC §2056.

Portability and the DSUE If you are married, you must understand portability. Enacted under IRC §2010(c), portability allows a surviving spouse to inherit the Deceased Spousal Unused Exclusion (DSUE). A couple can therefore protect up to $30 million from federal estate taxes without using complex trust structures — though a bypass trust retains real advantages that portability cannot match, weighed at section “Bypass Trusts”.

To secure this portability election for the survivor, the executor of the first-to-die spouse must timely file Form 706. This is not automatic. The return is due nine months after the date of death. However, you can secure an automatic six-month extension by filing Form 4768 on or before the original deadline. Failure to file Form 706 forfeits the DSUE, leaving the survivor’s estate vulnerable to future tax changes or asset growth. For comprehensive guidance on compliance timelines, consult IRS Pub. 559 and IRC §2010(c)(5).