Estate taxes — who actually pays them

This is the part people worry about most and are least likely to owe. The large majority of estates pay no federal estate tax at all — the exemption runs into the millions per person, so only a small fraction of estates are anywhere near it.

Deliberately, this page names no figures. The thresholds change with legislation and are adjusted for inflation, and a number written down here would quietly stop being true. Check the current figure, or ask someone whose job it is.

The different taxes, which get muddled

Estate tax — paid by the estate, before anything is distributed, and only above the exemption.
Inheritance tax — paid by the person inheriting. Federal law has none; a handful of states do, and close family are often exempt or taxed lightly.
State estate tax — several states levy their own, and some have a much lower threshold than the federal one. This is the one that catches people out.
Income tax — a final return is still due for the year of death, and inherited retirement accounts are usually taxable to whoever receives them.

Things that generally are not taxed

Anything left to a spouse, in most cases, without limit.
Anything left to a qualifying charity.
An inheritance itself is usually not income to the person receiving it — receiving money from an estate does not normally go on your tax return.

Two things worth knowing

Portability. A married couple can often combine their exemptions, so the survivor's estate can use both — but in the US this usually requires filing an estate tax return when the first spouse dies, even when no tax is owed. Miss that filing and the benefit can be lost.

Life insurance. The payout is generally income-tax free to the beneficiary, but if you owned the policy it may still count toward the size of your estate. For large estates that is a reason people hold policies in a trust.

General information, not legal or tax advice, and tax law changes. For your own affairs, talk to a qualified attorney or tax adviser. ← All guides