Estate Taxes

Estate taxes are taxes imposed on the total value of a deceased person's assets before those assets are distributed to beneficiaries. The tax is levied on the estate itself, not on the individual heirs or beneficiaries.

Key points about estate taxes:

• What is taxed? The estate tax applies to the "gross estate," which includes all property, cash, securities, real estate, insurance, trusts, business interests, and other assets owned or controlled by the deceased at the time of death. The value used is the fair market value at death, not the original purchase price.

• Who pays? The estate pays the tax before any assets are distributed to heirs. This differs from inheritance tax, which is paid by individual beneficiaries after receiving their inheritance.

• Federal vs. State: The federal government imposes an estate tax only on estates exceeding a certain threshold. For 2025, the federal exemption is $13.99 million per individual, meaning estates valued below this amount are generally not subject to federal estate tax. The tax rate ranges from 18% to 40% on the taxable amount above the exemption.

• State estate taxes: In addition to the federal estate tax, 12 states plus the District of Columbia impose their own estate taxes, with varying exemption limits and rates.

• Deductions and exemptions: Certain deductions reduce the taxable estate, including debts, estate administration expenses, property passing to surviving spouses (unlimited marital deduction), and qualified charitable donations.

In summary, estate tax is a tax on the right to transfer property at death, calculated on the total fair market value of the deceased's assets after allowable deductions, paid by the estate before distribution to heirs, and primarily relevant for estates exceeding multimillion-dollar thresholds.