A woman I'll call Ruth buried her husband of forty-one years in the spring. Their estate was modest: a paid-off house, some retirement accounts, a brokerage account their kids would one day split. Nobody told her she owed the government anything, and she didn't. Nobody told her about a form she could file, one that would cost her nothing that year and might be worth millions to her children later. So she didn't file it. That is how a family with no estate tax problem can end up with one.

The story is a composite, but the mechanism is real. It's worth understanding even if you're sure the estate tax is a rich person's problem.

The number that lets most people stop worrying

The federal estate tax applies only to the value of an estate above a threshold called the basic exclusion amount. For people dying in 2026, that threshold is $15 million per person. Congress set it in the 2025 tax law, and it is adjusted for inflation in later years. Above the line, the top rate is 40 percent. Below it, the federal government takes nothing.

The threshold has not always been this generous. Before 2018 it was a fraction of today's figure, and for years the law carried a scheduled drop that kept planners nervous. That scheduled drop is now gone. The current law has no sunset date, though Congress can change it at any time.

For a married couple, the practical number is larger. Each spouse has their own exemption, so a couple can shelter up to $30 million, if they use both. The "if" is the subject of this article.

Portability: the exemption that expires unless you claim it

When the first spouse dies, their exemption doesn't automatically transfer to the survivor. Most people assume it does. It doesn't.

The law lets the surviving spouse inherit whatever part of the first spouse's exemption went unused. This is called portability, and the inherited amount is called the deceased spousal unused exclusion, or DSUE. A husband dies leaving everything to his wife. Because of the marital deduction, no tax is due, so his $15 million exemption is entirely unused. If his executor makes the portability election, his wife can later carry that amount alongside her own.

The election is made by filing a federal estate tax return, Form 706, even though no tax is owed. That's the trap. A return that owes nothing feels optional. Nobody sends a reminder. The attorney, the bank, and the grieving family all see a zero and move on.

The return is generally due nine months after the date of death, with a six-month extension available if you ask. The IRS also provides a late-election path for estates that were not otherwise required to file. Under Revenue Procedure 2022-32, the portability election can be made up to the fifth anniversary of the death. That gives you a safety net, but it's a narrow one. You still have to know the form exists, and you still have to do it.

Why a "small" estate can still become a taxable one

A couple who feels comfortably under $30 million may not stay there. Consider what moves the number:

  • A home that has been in the family since the 1980s and now sits in an expensive market.
  • Life insurance, which counts toward the estate if you own the policy.
  • Retirement accounts, which count at full pre-tax value.
  • A family business or farmland, valued at what it could sell for, not at what it earns.
  • A surviving spouse's later inheritance, a second property, or a windfall.

None of those is exotic. The surviving spouse may live another twenty years, with assets compounding, and the exemption is measured at the second death. Portability costs a few hours of professional time now. Skipping it means betting that nothing about the law or your assets will ever change.

It also matters because the law can change. The exemption is set by Congress. If a future Congress lowers it, a family that filed for portability keeps the DSUE already locked in on the first death, while a family that didn't has nothing to claim.

The tax that hits much smaller estates

The federal number is only part of the picture. A number of states levy their own estate tax, and their thresholds are far lower than $15 million. Oregon's, for example, starts at $1 million. Several states instead charge an inheritance tax, which is paid by the people who receive the money rather than by the estate, with rates that depend on how closely related the heir is to the person who died.

This catches people off guard for a simple reason. They hear that the federal exemption is huge, they conclude that estate tax isn't their concern, and they never look at their own state's rules. The two systems run independently. An estate can owe nothing federally and still owe a state bill that is due within months, often in cash, often when the family has a house and no liquid money.

Rules differ and change, so check your state's current thresholds rather than trusting a blog post, including this one. The point is to check at all.

The good news hiding in the tax code

One feature softens the picture. Assets that pass at death generally receive a step-up in basis, meaning their tax cost is reset to market value on the date of death. A stock bought for $20,000 that's worth $200,000 when its owner dies can be sold by the heirs with little or no capital gains tax. Gifted during life, the same stock would carry the original $20,000 basis along with it.

This is why "I'll give it away now to avoid the estate tax" is often backward for families who are nowhere near the threshold. They trade a tax they would never have paid for a capital gains bill their children will. Retirement accounts are the main exception, since they don't get a step-up and carry their own tax rules.

Your next moves

  • Add up your estate on one page. List your home's current market value, retirement accounts, brokerage accounts, business interests, and the death benefit on any life insurance you own. If the total is nowhere near $15 million per person, you can stop worrying about the federal tax. You still have the next steps.
  • Look up your state's rules. Search your state revenue department's site for "estate tax" and "inheritance tax." Write down the threshold and whether the tax falls on the estate or the heirs.
  • If you're married, ask one question of your estate attorney or CPA: "If I die first, will someone file Form 706 to elect portability, and who is responsible?" Put the answer in writing.
  • Name the deadline in your instructions. Add a line to the letter or file your executor will open: "File a federal estate tax return within nine months of death to elect portability, even if no tax is due."
  • If a spouse has already died and no return was filed, check the date. If it's within five years of the death, talk to a tax professional about a late portability election now.
  • Think twice before gifting appreciated assets to "save taxes." Ask whether the step-up in basis at death would serve your heirs better.

Where this leaves your family

The estate tax is mostly a story about paperwork nobody remembers, not about money. The exemption is large enough to protect most families, but only the ones who know which forms exist, which deadlines apply, and what their own state expects. Heirloom exists for that kind of gap. It gives you one place to keep your asset list, your documents, and the instructions your executor will need, including the unglamorous line about the form that costs nothing to file. If you'd like to try it, you can start at heirloom.lumenlabs.works.