Understanding the Federal Estate Tax and Its Changes

T&G
Jul 3
3 min read

Updated: 5 days ago

What Is the Federal Estate Tax?

The federal estate tax is a tax on the transfer of property when someone dies. It applies only to the value of an estate that exceeds a certain exemption amount (i.e., "the applicable exclusion amount") set by the federal government. In simple terms, it’s a tax on what you leave behind when you pass away—but only on the assets in excess of the applicable exclusion amount.

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The shape of the State of Indiana with dollar bills. — No Indiana Inheritance Tax

Indiana does not have an estate tax. The state inheritance tax was repealed in 2013.

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This year, the applicable exclusion amount is so high—nearly $14 million per person—that most families don’t have to worry about it. However, prior to the new budget bill, that high exemption was set to drop drastically in 2026, potentially pulling many more families into the estate tax world.

What Was Going to Happen in 2026?

Under The Tax Cuts and Jobs Act of 2017, the estate tax exemption was scheduled to be cut in half on January 1, 2026. That would’ve dropped the amount you could pass estate tax-free from nearly $14 million to about $7 million per person.

What Did the New Law Change?

The new legislation prevents that rollback. Starting January 1, 2026, the federal estate tax exemption will be increased to $15 million per person, indexed for inflation in future years. For married couples, that means up to $30 million can be passed on to heirs without paying any federal estate tax.

What Does This Mean for You?

Here’s the good news: if your estate is under $15 million if you're single or $30 million if you're a married couple, your estate likely won't owe any federal estate tax. An exception would be if you made large non-charitable gifts during your lifetime, which may have reduced the amount you can transfer free of estate tax at your death.

But estate planning isn’t just about taxes. It’s also about making sure:

Your wishes are carried out after you pass away.
Your family avoids unnecessary court involvement.
You protect what you’ve worked so hard to build.

Should You Update Your Estate Plan?

If you haven’t looked at your Will or Trust in a few years—or if you haven't yet created one—this is a great time to take action. You may benefit from:

Updating outdated documents.
Taking advantage of the increased exemption.
Putting protections in place for your spouse, children, or beneficiaries.

The Importance of Estate Planning

Estate planning is crucial for everyone, regardless of wealth. It ensures that your assets are distributed according to your wishes. It also helps to minimize taxes and avoid probate, which can be a lengthy and costly process.

Many people think estate planning is only for the wealthy. However, it is essential for anyone who wants to ensure their loved ones are taken care of after they are gone.

Common Misconceptions About Estate Planning

There are several misconceptions about estate planning that can prevent individuals from taking action. Here are a few:

"I don’t have enough assets to need a plan."
Everyone has assets, whether it's a home, savings, or personal belongings.
"I’m too young to worry about this."
Accidents can happen at any age. It’s wise to have a plan in place.
"My family will know what I want."
Without a clear plan, family members may disagree about your wishes.