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<\/figure><\/div>\n\n\nThe federal estate tax only applies to large estates (those valued at over $13.99 million for tax year 2025); however, some states have their own rules, which can also affect smaller estates. Understanding how the estate tax works can help you plan ahead and protect your legacy.<\/p>\n\n\n\n
Let\u2019s break down what the estate tax is, how it works, and what you can do to minimize it.<\/p>\n\n\n\n
File with H&R Block to get your max refund<\/h3>\nFile online<\/a><\/div>\n\n\n\nFile with a tax pro<\/a><\/div>\n<\/div><\/div><\/div>\n\n\n\nWhat is the federal estate tax?<\/h2>\n\n\n\n
The federal estate tax<\/strong> is a tax on the transfer of property after someone dies. It\u2019s based on the total value of everything the person owned or had an interest in at the time of death\u2014called their gross estate<\/strong>.<\/p>\n\n\n\nThis tax is paid by the estate itself, not the heirs. So, if you inherit money or property, you typically don\u2019t pay estate tax directly. Instead, the estate pays the tax before distributing assets to beneficiaries.<\/p>\n\n\n\n
The estate tax is sometimes referred to as the \u201cdeath tax,\u201d but it\u2019s actually a tax on the transfer of wealth. It\u2019s designed to apply only to the largest estates\u2014those worth millions of dollars. Most people won\u2019t ever owe it.<\/p>\n\n\n\n
What assets are subject to the estate tax?<\/h3>\n\n\n\n
The estate tax can apply to a wide range of assets, including:<\/p>\n\n\n\n
\n- Real estate (primary residences, vacation homes, investment properties)<\/li>\n\n\n\n
- Bank accounts and cash<\/li>\n\n\n\n
- Stocks, bonds, and mutual funds<\/li>\n\n\n\n
- Retirement accounts (like IRAs and 401(k)s)<\/li>\n\n\n\n
- Life insurance proceeds (if the deceased had ownership)<\/li>\n\n\n\n
- Business interests<\/li>\n\n\n\n
- Personal property (vehicles, jewelry, collectibles, furniture)<\/li>\n<\/ul>\n\n\n\n
It\u2019s important to note that the IRS considers the fair market value of assets<\/strong> to determine the gross estate\u2014not the original purchase price. Additionally, assets held jointly or in a trust may be included, depending on how they\u2019re structured.<\/p>\n\n\n\nHow does estate tax work?<\/h2>\n\n\n\n
Once the gross estate is calculated, certain deductions are allowed to arrive at the taxable estate<\/strong>. These deductions may include:<\/p>\n\n\n\n\n- Debts and mortgages<\/li>\n\n\n\n
- Funeral and administrative expenses<\/li>\n\n\n\n
- Property left to a surviving spouse<\/li>\n\n\n\n
- Charitable donations<\/li>\n<\/ul>\n\n\n\n
In some cases, estates that include family farms or closely held businesses may qualify for special valuation reductions.<\/p>\n\n\n\n
After calculating the taxable estate, the IRS adds the value of any lifetime taxable gifts<\/strong>\u2014gifts made since 1977 that exceeded the annual exclusion limit to individuals (See \u201cEstate and gift tax\u201d below). The estate tax is then reduced by the unified credit<\/strong> (also sometimes referred to as the \u201clifetime exclusion\u201d) for estates and gifts, which effectively shelters up to $13.99 million from tax in 2025.<\/p>\n\n\n\nIf the value of the estate exceeds the exemption, the executor must file Form 706<\/a>\u00a0and pay any tax due within nine months of the date of death. In addition, a surviving spouse may elect to add any unused exemption to their own by filing a Form 706<\/a>\u00a0and electing portability.<\/p>\n\n\n\nEstate and gift tax<\/h2>\n\n\n\n
The estate tax and gift tax are linked. The IRS allows individuals to give away a certain amount each year\u2014$19,000 per recipient in 2025\u2014without affecting their lifetime exclusion. Gifts above that amount are considered taxable and must be reported on a gift tax return (Form 709<\/a>).<\/p>\n\n\n\nGenerally, the following types of gifts are not considered taxable:<\/p>\n\n\n\n
\n- Gifts to a spouse<\/li>\n\n\n\n
- Gifts to charitable or political organizations<\/li>\n\n\n\n
- Payments made directly to medical or educational institutions (i.e., paying someone\u2019s tuition or medical expenses)<\/li>\n<\/ul>\n\n\n\n
The unified credit is a tax credit that offsets the amount of federal estate or gift tax you might owe. It\u2019s called \u201cunified\u201d because it applies to both lifetime gifts (subject to gift tax) and transfers at death (subject to estate tax).<\/p>\n\n\n\n
Let\u2019s look at an example of how the unified credit works in practice:<\/strong><\/p>\n\n\n\nYou give away $5 million in taxable gifts (above the annual per-person exclusion limit) during your lifetime. That $5 million uses up part of your unified credit.<\/p>\n\n\n\n
If you pass away in 2025, your estate can only shield $8.99 million from estate tax as outlined below.<\/p>\n\n\n\n
\u00a0$13.99 million (lifetime exclusion)
\u2013 $5 million
= $8.99 million (remaining exemption).<\/p>\n\n\n\n
Related<\/strong>: Gift tax: How much is gift tax and who pays it?<\/a><\/p>\n\n\n\nEstate tax rates 2025<\/h2>\n\n\n\n
For 2025, the federal estate tax exemption<\/strong> is:<\/p>\n\n\n\n\n- $13.99 million\u00a0per individual<\/li>\n\n\n\n
- $27.98 million\u00a0for married couples (with proper planning)<\/li>\n<\/ul>\n\n\n\n
Only the estate value\u00a0above the exemption amount is taxed. The tax rate is progressive, ranging from 18% to 40%.<\/p>\n\n\n\n
What is the federal estate tax?<\/h2>\n\n\n\n
The federal estate tax<\/strong> is a tax on the transfer of property after someone dies. It\u2019s based on the total value of everything the person owned or had an interest in at the time of death\u2014called their gross estate<\/strong>.<\/p>\n\n\n\n This tax is paid by the estate itself, not the heirs. So, if you inherit money or property, you typically don\u2019t pay estate tax directly. Instead, the estate pays the tax before distributing assets to beneficiaries.<\/p>\n\n\n\n The estate tax is sometimes referred to as the \u201cdeath tax,\u201d but it\u2019s actually a tax on the transfer of wealth. It\u2019s designed to apply only to the largest estates\u2014those worth millions of dollars. Most people won\u2019t ever owe it.<\/p>\n\n\n\n The estate tax can apply to a wide range of assets, including:<\/p>\n\n\n\n It\u2019s important to note that the IRS considers the fair market value of assets<\/strong> to determine the gross estate\u2014not the original purchase price. Additionally, assets held jointly or in a trust may be included, depending on how they\u2019re structured.<\/p>\n\n\n\n Once the gross estate is calculated, certain deductions are allowed to arrive at the taxable estate<\/strong>. These deductions may include:<\/p>\n\n\n\n In some cases, estates that include family farms or closely held businesses may qualify for special valuation reductions.<\/p>\n\n\n\n After calculating the taxable estate, the IRS adds the value of any lifetime taxable gifts<\/strong>\u2014gifts made since 1977 that exceeded the annual exclusion limit to individuals (See \u201cEstate and gift tax\u201d below). The estate tax is then reduced by the unified credit<\/strong> (also sometimes referred to as the \u201clifetime exclusion\u201d) for estates and gifts, which effectively shelters up to $13.99 million from tax in 2025.<\/p>\n\n\n\n If the value of the estate exceeds the exemption, the executor must file Form 706<\/a>\u00a0and pay any tax due within nine months of the date of death. In addition, a surviving spouse may elect to add any unused exemption to their own by filing a Form 706<\/a>\u00a0and electing portability.<\/p>\n\n\n\n The estate tax and gift tax are linked. The IRS allows individuals to give away a certain amount each year\u2014$19,000 per recipient in 2025\u2014without affecting their lifetime exclusion. Gifts above that amount are considered taxable and must be reported on a gift tax return (Form 709<\/a>).<\/p>\n\n\n\n Generally, the following types of gifts are not considered taxable:<\/p>\n\n\n\n The unified credit is a tax credit that offsets the amount of federal estate or gift tax you might owe. It\u2019s called \u201cunified\u201d because it applies to both lifetime gifts (subject to gift tax) and transfers at death (subject to estate tax).<\/p>\n\n\n\n Let\u2019s look at an example of how the unified credit works in practice:<\/strong><\/p>\n\n\n\n You give away $5 million in taxable gifts (above the annual per-person exclusion limit) during your lifetime. That $5 million uses up part of your unified credit.<\/p>\n\n\n\n If you pass away in 2025, your estate can only shield $8.99 million from estate tax as outlined below.<\/p>\n\n\n\n \u00a0$13.99 million (lifetime exclusion) Related<\/strong>: Gift tax: How much is gift tax and who pays it?<\/a><\/p>\n\n\n\n For 2025, the federal estate tax exemption<\/strong> is:<\/p>\n\n\n\n Only the estate value\u00a0above the exemption amount is taxed. The tax rate is progressive, ranging from 18% to 40%.<\/p>\n\n\n\nWhat assets are subject to the estate tax?<\/h3>\n\n\n\n
\n
How does estate tax work?<\/h2>\n\n\n\n
\n
Estate and gift tax<\/h2>\n\n\n\n
\n
\u2013 $5 million
= $8.99 million (remaining exemption).<\/p>\n\n\n\nEstate tax rates 2025<\/h2>\n\n\n\n
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