Estate Taxes in Alabama: What Actually Applies to You

Most people who ask us about estate taxes will never owe one. That is not a brush-off, it is the actual answer, and it is worth knowing before you spend money planning around a tax that does not apply to you.

Alabama does not have an estate tax or an inheritance tax

Alabama has collected no estate tax on deaths after December 31, 2004. The tax is technically still on the books, but it is a "pick-up" tax: it was measured by a credit against the federal estate tax, taking a share of what the federal government was already collecting rather than adding anything of its own. Congress phased that credit into a deduction, so the Alabama calculation now comes out at zero and no state return is required. Alabama also never had a separate inheritance tax to repeal.

So if you live in Alabama and your heirs live in Alabama, there is no state death tax on what you leave. Be careful with that sentence, though. It is about Alabama. If you own real property in another state, that state's rules can reach it, and a few states tax what a beneficiary receives from someone who lived there. That last one runs off where the person who died lived, not where you live, so inheriting from a relative in Pennsylvania can reach you in Alabama while the reverse does not.

The federal estate tax starts at $15 million per person

For 2026 the federal estate and gift tax exemption is $15 million per person. A married couple can shelter $30 million between them, and the exemption is indexed for inflation starting in 2027.

That figure is no longer scheduled to expire. The exemption had been scheduled to fall by roughly half at the end of 2025, which is why so much planning advice written before then reads as urgent. Legislation signed in July 2025 set the $15 million figure without a sunset date.

Above the exemption the top rate is 40 percent, and the return and payment are due nine months after death. An extension is available for another six months to file, but not to pay.

There is one piece of housekeeping worth knowing even for families well under the threshold. A surviving spouse only gets the deceased spouse's unused exemption if it is formally elected, and that election is made by filing a federal estate tax return. It is not automatic. Families sometimes skip the return because no tax is owed. That is fixable for a while: an estate that was not otherwise required to file has a simplified route to make a late election up to the fifth anniversary of the death. After that it takes a private ruling request. Two things to know if you are relying on it. The transferred exemption comes from your last deceased spouse, so remarrying and surviving again can replace what you were counting on. And it does not carry over the generation-skipping exemption, which has no portability at all.

What actually costs Alabama families money

If the estate tax is not your problem, something else usually is. In our experience the things that cost families real money and real time have nothing to do with the IRS.

Probate. Assets in your name alone at death go through the county probate court. That takes months, it is public, and it costs money in filing fees and legal work.

Titling. A trust only avoids probate for the assets actually transferred into it. A perfectly drafted trust with an untitled house does not work.

Beneficiary forms. Retirement accounts and life insurance pass by the form on file with the company, not by your will. Those forms are frequently decades out of date and frequently name someone the family did not expect.

Income tax basis. This one gets missed. Assets you own at death generally get a new cost basis equal to their date-of-death value, which can erase a lifetime of capital gain for your heirs. Giving the same asset away during life usually does not do that. Well-meaning lifetime gifts of appreciated property, made to avoid a tax the family was never going to owe, can create an income tax bill that would not have existed. One large exception: retirement accounts do not get this treatment. Whoever inherits a traditional IRA or 401(k) pays income tax on what comes out, exactly as you would have.

If you are near the threshold

Some families are genuinely in range, particularly those holding land, a closely held business, or significant life insurance owned in the wrong place. Life insurance is a common surprise: a policy you own is included in your taxable estate even though the money goes to someone else.

There are established structures for those situations, including irrevocable life insurance trusts, grantor retained annuity trusts, family limited partnerships, and lifetime gifting strategies. Which of them fits, if any, depends entirely on what you own and what you want to happen. That is a conversation, not a product.

The honest summary

For the large majority of Alabama families, the death tax question is already answered: there is no state tax, and the federal exemption is far above what they will ever have. The planning that matters for them is about staying out of court, keeping the plan current, and making sure the paperwork matches the intention.

If you want to know which category you are in, that is a short conversation and we are glad to have it.