The federal estate tax applies only to estates worth more than $13.61 million in 2024, and it takes 40 percent of the value above that threshold.

Most people do not owe federal estate tax because the threshold is high. Your estate has to exceed $13.61 million for the tax to explore at all. If your estate is smaller, you owe nothing to the IRS, regardless of what you leave behind. The $13.61 million figure changes each year based on inflation — it was $12.92 million in 2023 and will be different in 2025.

When the tax does explore, it takes 40 cents of every dollar above the threshold. So if your estate is worth $14.61 million, you would owe 40 percent of $1 million, which is $400,000. The executor of your estate — the person named in your will to handle your affairs — is responsible for filing the estate tax return and paying what is owed before distributing money to heirs.

Some states also have their own estate taxes or inheritance taxes, which are separate from the federal tax. State thresholds are usually much lower than the federal one, sometimes as low as $1 million. If you live in or own property in a state with an estate tax, you may owe state tax even if you do not owe federal tax.

Key Takeaways

  • Federal estate tax only applies to estates worth more than $13.61 million in 2024, so most estates owe nothing.
  • The tax rate is a flat 40 percent on the amount above the threshold, not on the entire estate.
  • The $13.61 million threshold is adjusted each year for inflation and will change in 2025.
  • Some states have their own estate or inheritance taxes with much lower thresholds, so check your state's rules even if you do not owe federal tax.
  • Your will should name an executor who understands that they may need to file an estate tax return with the IRS.

How the federal threshold works

The $13.61 million threshold is called the federal estate tax exemption. It is the amount you can pass to your heirs without owing any federal estate tax. You can leave $13.61 million to your children, grandchildren, or anyone else, and the IRS takes nothing. Only the amount above $13.61 million is taxed.

This exemption applies per person. If you are married, you and your spouse each have a separate $13.61 million exemption, for a combined $27.22 million. If your joint estate is worth $27 million, you owe no federal estate tax. If it is worth $30 million, the tax applies only to the $3 million above the combined threshold.

The exemption is scheduled to drop on January 1, 2026. Unless Congress changes the law, it will fall to roughly $7 million per person (adjusted for inflation). This means estates that do not owe tax now may owe tax after 2025 if the law does not change. Married couples with estates between $14 million and $27 million should review their plans with an attorney or tax professional before the end of 2025.

When you actually file an estate tax return

You file an estate tax return only if the estate is large enough to owe tax. The form is Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Your executor files it with the IRS within nine months of the person's death, though you can request a six-month extension if needed.

Even if the estate does not owe tax, you may still need to file Form 706 to preserve unused exemption for a surviving spouse. This is called portability. If your spouse dies first and you do not file Form 706, you lose the right to use their unused exemption, which could cost your heirs hundreds of thousands of dollars in tax later. Filing the return costs nothing but takes time and usually requires a tax professional.

The executor gathers documents showing what the estate owned on the date of death — real estate appraisals, bank statements, investment account statements, life insurance policies, and retirement account beneficiary forms. These values are reported on Form 706, and the IRS may ask for proof of the valuations.

State estate and inheritance taxes

Twelve states and the District of Columbia have their own estate taxes. These states are Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. If you live in one of these states or own real estate there, your estate may owe state tax even if it does not owe federal tax.

State thresholds vary widely. Washington's threshold is $2.193 million in 2024. Maryland's is $5.85 million. Connecticut's is $12.92 million. These thresholds also change each year. Six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — have inheritance taxes instead of estate taxes. Inheritance tax is paid by the person who receives the money, not by the estate itself, and the rate depends on who inherits (spouses often pay nothing, while distant relatives pay more).

If you live in a state with an estate or inheritance tax, you will need to file a state return in addition to any federal return. Your executor or tax professional can tell you which forms are required and when they are due.

Life insurance and retirement accounts

Life insurance proceeds and retirement account balances are included in your taxable estate, even though they pass directly to named beneficiaries and do not go through your will. If you have a $5 million life insurance policy and your estate is worth $10 million, your taxable estate is $15 million for federal tax purposes.

You can reduce the tax burden by naming a trust as the beneficiary of life insurance instead of your estate, or by transferring the policy to an irrevocable life insurance trust. These strategies keep the insurance proceeds out of your taxable estate. However, they require careful planning and should be set up while you are alive. An attorney who specializes in estate planning can explain whether these strategies make sense for your situation.

Retirement accounts like IRAs and 401(k)s pass to named beneficiaries outside your will, but they are still part of your taxable estate. The beneficiary will owe income tax on withdrawals, but the account value counts toward your estate tax threshold.

What happens if you do not pay

If an estate owes federal estate tax and the executor does not pay it, the IRS will pursue collection from the heirs. The tax becomes a lien on the estate's assets, which means those assets cannot be distributed until the tax is paid. The IRS can also assess penalties and interest if the return is filed late or the tax is paid late.

In practice, most large estates have enough liquid assets — cash, stocks, or bonds — to pay the tax without forcing the sale of real estate or a family business. If the estate does not have enough cash, the executor may need to sell assets to raise the money. This is another reason to plan ahead: you can structure your assets or buy life insurance to make sure your executor has the cash to pay the tax without disrupting your heirs' inheritance.

Planning before death

If your estate is close to the federal threshold or above it, you should review your plan with an estate attorney or tax professional. You can reduce the taxable value of your estate by making gifts during your lifetime. In 2024, you can give up to $18,000 per person per year without using any of your exemption. Married couples can give $36,000 per person per year.

You can also set up trusts, make charitable donations, or structure your business ownership in ways that reduce estate tax. These strategies work only if you set them up before you die, so waiting until you are ill or elderly limits your options. If you have a will but no estate plan, your heirs may pay more in tax than necessary.

Frequently Asked Questions

Is estate tax the same as inheritance tax?

No. Estate tax is paid by the estate itself before money goes to heirs. Inheritance tax is paid by the person who receives the money. Six states have inheritance tax instead of estate tax. Some states have both. The rules and rates are different, so check your state's law.

Do I owe estate tax if I leave money to my spouse?

No. Money left to a surviving spouse is not subject to federal estate tax, no matter how much it is. This is called the marital deduction. However, when your spouse dies, their entire estate — including what they inherited from you — is subject to tax if it exceeds the threshold at that time.

What if my estate is worth exactly $13.61 million?

You owe no federal estate tax. The exemption covers estates up to and including $13.61 million. Tax applies only to the amount above the threshold. If your estate is $13.61 million or less, your executor does not need to file Form 706 unless you want to preserve portability for a surviving spouse.

Can I reduce my estate tax by giving money away before I die?

Yes. You can give up to $18,000 per person per year in 2024 without using your exemption. Gifts to spouses and charities have no limit. Larger gifts use your exemption but do not trigger a tax. An estate attorney can help you plan a gifting strategy that reduces your taxable estate.

What happens to the exemption after 2025?

The federal exemption is scheduled to drop to roughly $7 million per person on January 1, 2026, unless Congress extends the current law. This means estates between $14 million and $27 million (for married couples) should consider accelerating gifts or other tax-reduction strategies before the end of 2025.