Federal estate tax methodology

Exemption amounts: IRS Rev. Proc. 2024-40

The 2025 federal estate tax exemption is $13,990,000 per individual, per IRS Rev. Proc. 2024-40. For married couples using the portability election, the combined available exemption is $27,980,000. The 2024 exemption was $13,610,000 per IRS Rev. Proc. 2023-34.

The post-sunset 2026 exemption is estimated at approximately $7,000,000 per individual. This is derived from the pre-TCJA base of $5,000,000 per IRC §2010(c)(3)(A) as enacted in 2010, inflated using the IRS's published C-CPI-U adjustment factors from 2011 to 2026. The IRS will publish the exact 2026 amount in the annual Rev. Proc. (typically October–November 2025). We update immediately on publication.

Exemption used in calculator:
  2025 (current law):  $13,990,000 individual; $27,980,000 married w/ portability
  2026 (post-sunset):  ~$7,000,000 individual; ~$14,000,000 married w/ portability
  Source: IRS Rev. Proc. 2024-40 (2025); estimated inflation adj. (2026)

Marginal rate schedule: IRC §2001(c)

The federal estate tax is computed by applying the unified rate schedule under IRC §2001(c) to the sum of the taxable estate and all adjusted taxable gifts (gifts made after 1976 using more than the annual exclusion). The top marginal rate is 40%, applying to taxable amounts over $1,000,000. The calculator applies the unified credit (equal to the tax computed on the exemption amount at the marginal rate schedule) against the tentative tax to produce estate tax due.

Estate tax computation (simplified):

Tentative tax base = Taxable estate + Adjusted taxable gifts
Tentative tax = Apply IRC §2001(c) rate schedule to tentative tax base
Unified credit = Tentative tax on exemption amount at marginal rates
Estate tax due = Max(0, Tentative tax − Unified credit − Gift tax paid)

At the 2025 exemption of $13.99M:
Unified credit = ~$5,444,000 (40% × $13.61M, approximation)

For taxable estates above the exemption, marginal rate is effectively 40%.

Portability and DSUE: IRC §2010(c)(5)

The portability election under IRC §2010(c)(5) allows the surviving spouse's estate to use the Deceased Spousal Unused Exemption (DSUE). The DSUE equals the deceased spouse's basic exclusion amount minus the amount used by the deceased spouse's taxable estate and lifetime taxable gifts. The DSUE is locked at the exemption level in effect at the first spouse's death — a surviving spouse whose first spouse died in 2025 with a $13.99M exemption and $2M taxable estate has a DSUE of $11.99M, even after the 2026 sunset.

DSUE calculation:
DSUE = (First spouse exemption) − (First spouse taxable estate + first spouse lifetime gifts)

Example (first spouse dies 2025):
First spouse exemption: $13,990,000
First spouse taxable estate: $2,000,000
First spouse prior lifetime gifts over exclusion: $0
DSUE: $13,990,000 − $2,000,000 = $11,990,000

Surviving spouse 2026 available exemption (post-sunset):
Own exemption: ~$7,000,000
Plus DSUE: $11,990,000
Total: ~$18,990,000

The calculator models DSUE separately from the surviving spouse's own exemption so the user can see each component. The portability election requires a timely-filed Form 706 — the calculator displays a notice that portability requires filing within 9 months of death (15 months with extension).

Anti-clawback rule: IRS T.D. 9884

Under Treasury Reg. §20.2010-1(c) (issued as IRS T.D. 9884, effective November 26, 2019), the credit against estate tax is the greater of: (a) the credit based on the applicable exclusion amount in effect at the decedent's death, or (b) the credit attributable to the basic exclusion amount applied to the decedent's lifetime taxable gifts. This prevents the estate tax from being computed as if the TCJA exemption never applied to lifetime gifts made under it.

Anti-clawback modeling:

Pre-sunset gift in 2025: $8,000,000 (sheltered by $13.99M exemption)
Donor dies 2027 under ~$7M post-sunset exemption.

Without anti-clawback:
  Adjusted taxable gifts: $8,000,000
  Remaining estate: $3,000,000
  Tentative base: $11,000,000
  Tentative tax on $11M: ~$4,400,000 (at 40%)
  Unified credit at $7M: ~$2,800,000
  Estate tax due: ~$1,600,000

With anti-clawback (T.D. 9884):
  Unified credit = Greater of (a) credit at $7M death exemption
                  or (b) credit on $8M gift = ~$3,200,000
  Estate tax due: Max(0, ~$4,400,000 − ~$3,200,000) = ~$1,200,000
  Anti-clawback saves: ~$400,000 vs. without it

Note: In many cases the anti-clawback fully eliminates estate tax on the
gift amount, depending on remaining estate size. This is a simplified example.

Irrevocable trust shield

Assets properly transferred to an irrevocable trust where the grantor retains no interest under IRC §§2036–2042 are excluded from the grantor's gross estate. The calculator models the irrevocable trust shield as a direct reduction of the gross estate input: if the user enters $5M in funded irrevocable trust assets, the calculator reduces the gross estate by $5M before computing estate tax. Trust appreciation also grows outside the estate — the calculator models projected trust growth at a user-specified rate over a planning horizon.

Edge cases not fully modeled in the current version: (1) SLATs where the reciprocal trust doctrine may apply — the calculator does not detect reciprocal SLAT structures; (2) retained interest trusts (GRATs, QPRTs) where IRS §2036 inclusion rules may pull assets back into the estate if the grantor dies during the trust term; (3) life insurance transferred to an ILIT within 3 years of death (§2035 look-back rule — the transfer must be at least 3 years before death to avoid estate inclusion). A licensed estate planning attorney must evaluate trust structure for actual inclusion-avoidance purposes.

Limitations

• State estate and inheritance taxes (17 states + DC) are not modeled. Residents of Massachusetts, Oregon, Washington, Minnesota, Illinois, Connecticut, Rhode Island, Vermont, Maine, Hawaii, New York, New Jersey, Pennsylvania, Iowa, Kentucky, Nebraska, Maryland, and DC have additional state-level exposure below the federal threshold.
• Generation-skipping transfer tax (GST) is not modeled — large gifts to grandchildren or trusts for grandchildren trigger separate GST analysis.
• Business valuation discounts (minority interest, lack of marketability) are not applied — the calculator uses face-value inputs for business interests; actual taxable value may be lower after professional appraisal.
• The post-sunset exemption figure (~$7M) is an estimate based on C-CPI-U inflation — the IRS will publish the exact 2026 amount. We update immediately on IRS publication.
• This calculator does not model the income tax basis consequences of gifting (loss of step-up in basis at death) vs. holding assets until death for step-up purposes. A complete estate plan requires coordinated income tax and estate tax analysis.

Primary sources

• IRS Rev. Proc. 2024-40 — 2025 federal estate tax exemption ($13.99M individual, $27.98M married with portability); 2025 annual gift exclusion ($19,000 per donee)
• IRS Rev. Proc. 2023-34 — 2024 federal estate tax exemption ($13.61M individual); 2024 annual gift exclusion ($18,000)
• IRC §2001 et seq. — Federal estate tax computation; marginal rate schedule (40% top rate); unified credit; portability under §2010(c)(5)
• IRS T.D. 9884 — Anti-clawback regulations; Treasury Reg. §20.2010-1(c)