How to Determine Federal Estate Taxes

If you're not sure about whether or not the estate you're in charge of might owe federal estate tax, here are the rules you need to know.

Figuring out how much federal estate tax is owed after someone's death can be complicated. Under current law, only very large estates owe tax; if an estate's value is less than $11.4 million, no tax will be owed. That number is indexed for inflation and rises each year. Fewer than one percent of all estates owe federal estate tax.

What Is Included in an Estate?

Estate tax is based on the value of the entire estate—that is, all property left by someone who has died. Estate assets include:

  • real estate
  • cars, boats, RV’s
  • bank accounts, cash, stocks, bonds
  • retirement accounts (IRAs & 401k’s)
  • life insurance proceeds
  • furniture, antiques, jewelry, artwork
  • anything else of monetary value

A lot of property, however, is not counted. Property is not counted, for federal estate tax purposes, if it’s left to:

  • a surviving spouse (as long as he or she is a U.S. citizen and the marriage is recognized by the federal government), or
  • a tax-exempt charity.

Calculating Estate Tax

For deaths in 2019, tax is owed on the amount of property in the estate that exceeds $11.4 million. The tax rate is up to 40%.

Special Tax Breaks for Married Couples

Surviving spouses get a big tax break, known as "portability." The survivor can make use of the deceased spouse’s tax exemption, if it wasn’t all used at the first spouse’s death. The result is that married couples get a total $22.8 million exemption from federal estate tax.

To learn more, see "Portability" of Federal Estate Tax Exemptions.

Legal Help With Reducing Estate Tax

If you are wealthy enough to be concerned about federal estate tax, it is important to contact an experienced probate attorney. A skilled lawyer can explain strategies to minimize estate tax at your death, preserving as much of your estate as possible for your family. For example, you might want to create a bypass trust with your spouse, or hold a life insurance policy in an irrevocable life insurance trust.

If you are wrapping up the estate of someone who has died, and you think the estate may owe federal estate tax, by all means contact an attorney. Preparing a federal estate tax return (IRS Form 706) is not a do-it-yourself job.

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