Estate tax is a federal tax on the total value of everything a person owns when they die
When someone passes away, the federal government may tax their estate — the money, property, investments, and other assets they leave behind. This tax applies only to estates above a certain dollar threshold, which changes each year. Most estates never pay this tax because the threshold is high and because spouses can pass assets to each other without triggering it.
Estate tax is separate from income tax, property tax, and inheritance tax (which some states charge). It is a one-time tax on the total value of what you owned at death, calculated before assets are divided among heirs.
Key Takeaways
- Estate tax applies only to estates worth more than a threshold amount set by federal law, which was $13.61 million per person in 2024 and changes yearly.
- The tax rate on taxable estates ranges from 18 percent to 40 percent, depending on how much the estate exceeds the threshold.
- Married couples can combine their thresholds, so an estate would need to exceed roughly double the individual threshold before owing tax.
- States may also charge their own estate or inheritance tax, with lower thresholds than the federal government.
- A will or trust does not prevent estate tax; the tax is based on what you owned, not how you left it.
Who pays estate tax and when
The executor or administrator of the estate — the person named in the will to handle the estate — is responsible for calculating whether estate tax is owed and paying it to the IRS. They do this by filing Form 706, the federal estate tax return, within nine months of the person's death (though an extension can be requested).
The tax is paid from the estate's assets before money and property are distributed to heirs. This means heirs may receive less than they would have if no tax were owed. For example, if an estate is worth $15 million and the federal threshold is $13.61 million, the executor would owe tax on the $1.39 million excess, which comes out of the estate before heirs are paid.
The federal threshold and how it works
The federal estate tax threshold — called the exemption — is the amount of wealth a person can leave behind without owing federal estate tax. In 2024, this threshold is $13.61 million per person. Any estate value above that number is subject to tax.
The threshold changes every year based on inflation. It was lower in previous years and will likely be different in future years, so the amount that triggers tax is not fixed. You can find the current year's threshold on the IRS website.
For married couples, both spouses have their own threshold. If one spouse dies and does not use their full threshold, the surviving spouse can claim the unused portion — a process called portability. This means a married couple can effectively shield roughly double the individual threshold from federal estate tax.
Estate tax rates and how much you owe
The federal estate tax rate is not a single percentage. Instead, it uses a graduated scale: the more your estate exceeds the threshold, the higher the rate applied to that excess. The rates range from 18 percent on the smallest taxable amounts to 40 percent on the largest.
Here is how it works in practice: if an estate is worth $14 million and the threshold is $13.61 million, the taxable amount is $390,000. The tax owed would be calculated using the graduated rates for that $390,000 portion, not a flat 40 percent on the entire estate. The actual tax bill would be roughly $152,000 to $155,000, depending on the exact graduated brackets for that year.
State estate and inheritance taxes
Twelve states and the District of Columbia charge their own estate tax or inheritance tax, separate from the federal tax. These state taxes have lower thresholds than the federal government, meaning more estates may owe state tax even if they do not owe federal tax.
State thresholds vary widely. Some states set their threshold at $1 million or less, while others are higher. A few states tax inheritances based on who receives the money (inheritance tax) rather than the total estate value (estate tax). If you live in or own property in a state with an estate or inheritance tax, the executor will need to file a separate state return and pay that tax as well.
Ways to reduce or avoid estate tax
People with large estates often use legal strategies to reduce what their heirs will owe in tax. These include giving money or assets to family members during their lifetime (up to an annual limit), setting up trusts that hold assets outside the estate, donating to charity, and using life insurance in specific ways.
A will alone does not reduce estate tax — the tax is based on what you owned, not how you left it. Working with an estate planning attorney or tax professional can help identify which strategies make sense for your situation. These professionals can explain the rules, costs, and trade-offs of each approach.
Frequently Asked Questions
Does everyone have to pay estate tax?
No. Most estates do not owe federal estate tax because the threshold is high. In 2024, only estates worth more than $13.61 million per person trigger the tax. Married couples can shield roughly double that amount. State estate taxes have lower thresholds and affect more people, but still explore only to estates above each state's limit.
What is the difference between estate tax and inheritance tax?
Estate tax is paid by the estate itself before heirs receive anything. Inheritance tax is paid by the heirs based on what they inherit. Some states charge one, the other, or both. The federal government charges only estate tax, not inheritance tax.
Can I avoid estate tax by putting everything in a trust?
A revocable trust — one you can change or cancel during your lifetime — does not reduce estate tax. The IRS counts the assets in a revocable trust as part of your taxable estate. Certain irrevocable trusts can reduce estate tax, but they have trade-offs: you give up control of the assets and cannot change the trust terms later.
What happens if the executor does not file an estate tax return?
If estate tax is owed and the return is not filed, the IRS will charge penalties and interest on the unpaid tax. The estate may also face legal consequences. Filing the return, even if no tax is owed, protects the estate and heirs from future IRS disputes about the estate's value.
Does life insurance count toward the estate tax threshold?
Yes, life insurance proceeds are included in your taxable estate unless the policy is owned by someone else (like an irrevocable trust) or structured in a specific way. This can push an estate over the threshold even if other assets are modest. An estate planning professional can explain how to structure insurance to reduce this impact.