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. Minimizing this exposure relies on lifetime gifting under IRC §2503, “Taxable gifts”, funding irrevocable trusts, and leveraging the unlimited marital deduction under IRC §2056, “Bequests, etc., to surviving spouse”.
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. While this has diminished the tax-centric necessity of the traditional bypass trust (or Credit Shelter Trust), bypass trusts remain vital. They shelter assets from state estate taxes, protect wealth from future creditors, and prevent the surviving spouse from diverting the family fortune to a new partner.
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, “Federal Tax Guide for Survivors” and IRC §2010(c)(5).