Estate Tax
Estate tax is a federal tax on the transfer of assets at death, applying to estates exceeding the exemption amount of $13.61 million per person in 2024 ($27.22 million for married couples). The tax rate is 40% on amounts above the exemption.
Exam Tip
2024 exemption: $13.61M individual, $27.22M married. 40% tax rate on excess. Portability allows surviving spouse to use deceased spouse's unused exemption.
What is Estate Tax?
The federal estate tax is a tax on the transfer of property at death. It applies to the total value of a deceased person's assets (the "gross estate") that exceed the exemption threshold. Only estates valued above the exemption amount owe estate tax.
2024 Estate Tax Exemption
| Category | Exemption Amount |
|---|---|
| Individual | $13.61 million |
| Married Couple (combined) | $27.22 million |
| Tax Rate | 40% on amounts above exemption |
What's Included in the Gross Estate
| Asset Type | Examples |
|---|---|
| Real Property | Home, vacation property, land |
| Financial Assets | Cash, stocks, bonds, mutual funds |
| Retirement Accounts | IRAs, 401(k)s |
| Life Insurance | Death benefit if policy owned by decedent |
| Business Interests | Sole proprietorship, LLC, partnership interests |
| Personal Property | Jewelry, art, vehicles |
| Trusts | Assets in revocable trusts |
Estate Tax Calculation Example
| Item | Amount |
|---|---|
| Gross Estate | $20,000,000 |
| Less: Debts and Expenses | ($500,000) |
| Taxable Estate | $19,500,000 |
| Less: 2024 Exemption | ($13,610,000) |
| Amount Subject to Tax | $5,890,000 |
| Estate Tax (40%) | $2,356,000 |
Portability for Married Couples
A surviving spouse can use any unused portion of the deceased spouse's exemption (called "DSUE" - Deceased Spousal Unused Exclusion):
| Scenario | First Spouse Exemption Used | Remaining to Surviving Spouse |
|---|---|---|
| Example 1 | $5 million | $8.61 million |
| Example 2 | $0 | $13.61 million |
| Example 3 | $13.61 million | $0 |
Important: Must file estate tax return to elect portability, even if no tax is due.
Estate Tax vs. Inheritance Tax
| Feature | Estate Tax | Inheritance Tax |
|---|---|---|
| Who Pays | Estate (before distribution) | Beneficiary (after receiving) |
| Federal/State | Federal (and some states) | State only (no federal) |
| Tax Base | Entire estate value | Individual inheritance amount |
| States with Tax | 12 states + DC | 6 states |
Scheduled Sunset (2026)
| Year | Exemption Status |
|---|---|
| 2024 | $13.61 million |
| 2025 | Indexed for inflation (estimated ~$13.99 million) |
| 2026+ | Scheduled to revert to ~$7 million (pre-TCJA level, adjusted for inflation) unless Congress acts |
Estate Planning Strategies
| Strategy | Description |
|---|---|
| Lifetime Gifting | Use annual and lifetime gift exclusions |
| Irrevocable Life Insurance Trust (ILIT) | Remove life insurance from estate |
| Charitable Giving | Reduces taxable estate |
| Family Limited Partnership | Valuation discounts |
| Spousal Portability | Preserve unused exemption |
Exam Alert
Key points for financial planning exams:
- 2024 exemption: $13.61 million per person, $27.22 million for married couples
- Tax rate: 40% on amounts ABOVE exemption
- Portability: Surviving spouse can use deceased spouse's unused exemption (must file estate tax return)
- Scheduled sunset in 2026: Exemption may drop to approximately $7 million
- Unified with gift tax: Lifetime gifts reduce available estate tax exemption
- Only ~0.2% of estates owe federal estate tax due to high exemption
Study This Term In
Related Terms
Gift Tax
SecuritiesGift tax is a federal tax on transferring assets to another person while alive, with an annual exclusion of $18,000 per recipient in 2024 ($36,000 for married couples splitting gifts). The lifetime exemption of $13.61 million is unified with the estate tax exemption.
Beneficiary
InsuranceA beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.
Fiduciary
GeneralA fiduciary is a person or organization legally obligated to act in the best interest of another party, putting the client's interests ahead of their own.