A death tax is a tax on the money and property you leave behind when you die

The term "death tax" refers to taxes owed on your estate — the total value of everything you own at the time of your death. The two main types are the federal estate tax and state inheritance or estate taxes. Not every estate pays these taxes. The federal estate tax only applies if your estate exceeds a threshold amount set by law, which changes every year. State taxes vary widely: some states have no death tax at all, others tax only large estates, and a few tax inheritances based on who receives the money and how much they get.

The name "death tax" is informal shorthand used in conversation and media. On official tax forms and in law, you will see it called the estate tax, inheritance tax, or succession tax depending on which tax and which state you are in.

Key Takeaways

  • The federal estate tax applies only to estates larger than a set threshold, which was $13.61 million per person in 2024 but is scheduled to drop to roughly $7 million in 2026.
  • State death taxes work differently: some states tax the estate itself, others tax what beneficiaries receive, and many states have no death tax at all.
  • Your executor or estate representative files the tax return and pays any tax owed from estate assets before distributing money to heirs.
  • Planning ahead — such as making gifts during your lifetime or using trusts — can reduce or eliminate death taxes for larger estates.

Federal estate tax and the threshold that matters

The federal estate tax is a tax on the total value of your estate. It applies only if your estate is larger than the exemption amount. In 2024, that threshold is $13.61 million per person. If your estate is smaller, no federal estate tax is owed, and your executor does not need to file a federal estate tax return.

The exemption amount changes every year and is set to drop significantly in 2026. After 2025, the exemption is scheduled to fall to approximately $7 million per person (adjusted for inflation), unless Congress changes the law. This means more estates will owe federal tax starting in 2026 than do today. If you are married, you and your spouse each have your own exemption, so a married couple can shield roughly double the amount.

When an estate does owe federal tax, the rate is 40 percent of the amount over the exemption. This is one of the highest tax rates in the federal system, which is why estate planning matters for larger estates.

State death taxes: inheritance tax versus estate tax

Seventeen states and the District of Columbia have some form of death tax. They work in two different ways. An estate tax (used by 12 states plus D.C.) taxes the estate itself before it is divided among heirs. An inheritance tax (used by 6 states) taxes what each heir receives, and the rate or exemption may depend on their relationship to you — spouses and children often pay less or nothing, while distant relatives or non-relatives pay more.

State exemption thresholds are much lower than the federal threshold. Some states exempt estates under $1 million; others use $2 million or $3.5 million. A few states have no exemption at all, meaning any estate of any size may owe state tax. State tax rates range from 3 to 16 percent depending on the state and the size of the estate.

If you live in a state with no death tax but own property in a state that does, you may owe tax to that state on the property located there. This is one reason to know the rules in any state where you own real estate or have significant assets.

Who pays the death tax and when

Your executor or estate representative is responsible for filing any death tax returns and paying the tax owed. They do this using money from the estate itself, before distributing the remaining assets to your heirs. If the estate does not have enough liquid cash to pay the tax, the executor may need to sell assets — sometimes at an unfavorable time or price — to raise the money.

Federal estate tax returns are due nine months after death, though an extension to 15 months is available. State returns have their own important date, usually similar to the federal important date. If the tax is not paid on time, interest and penalties accrue.

The executor's job is to know whether a death tax return is required, file it correctly, and pay what is owed. This is why many families hire an estate attorney or tax professional when someone dies with a large estate.

How lifetime gifts and trusts can reduce death taxes

If your estate is large enough that federal or state death tax is a concern, you have options to reduce or eliminate it during your lifetime. The most common strategy is making taxable gifts to family members or others. You can give up to a certain amount per person per year without using any of your lifetime exemption. In 2024, that annual exclusion is $18,000 per recipient. Gifts above that amount use your lifetime exemption but do not trigger a tax payment when ready.

Another approach is using a revocable living trust or irrevocable trust. A revocable trust does not reduce your taxable estate but can avoid probate and keep your affairs private. An irrevocable trust can remove assets from your taxable estate entirely, but you give up control of those assets, so this strategy requires careful thought and usually professional guidance.

Married couples can use portability, a federal rule that allows a surviving spouse to use the deceased spouse's unused exemption. This can double the amount a couple can shield from federal tax without any trust or gift strategy.

These strategies work best when planned years in advance. If you have a large estate or expect to, talking to an estate planning attorney or tax professional is worth the cost.

What happens if you do not plan ahead

If you die without a plan and your estate is large enough to owe death tax, your heirs will face a significant bill. The executor must pay the tax before distributing anything to beneficiaries. If the estate is illiquid — meaning most of the value is in real estate, a business, or other assets that are hard to sell quickly — the executor may have to sell those assets at a loss to raise cash for taxes.

This is especially painful in family businesses or farms, where heirs may have to sell the business or land to pay the tax, even though they wanted to keep it in the family. Proper planning can prevent this outcome.

Even if your estate is below the threshold today, remember that the federal exemption is scheduled to drop in 2026. An estate that is safe now may not be safe then. Reviewing your plan every few years, especially around major life changes or market swings, is a practical step.

Frequently Asked Questions

Do I owe death tax if I leave everything to my spouse?

No federal estate tax is owed on assets left to a U.S. citizen spouse, thanks to the marital deduction. However, state inheritance or estate taxes may still explore depending on where you live. When your spouse later dies, their estate will owe tax on everything they own at that time if it exceeds the exemption.

Can I reduce my estate tax by giving money to charity?

Yes. Charitable donations reduce your taxable estate dollar for dollar. You can give during your lifetime or leave money to charity in your will. A charitable remainder trust or donor-advised fund can let you get a tax deduction now while the charity receives the money over time.

What if my estate is worth less than the exemption but I still owe state tax?

Some states tax estates below the federal exemption threshold. You would owe state tax but not federal tax. Your executor files the state return and pays the state tax from estate assets. This is why knowing your state's rules matters even if your estate is moderate-sized.

Does life insurance count toward my taxable estate?

Yes, unless the policy is owned by someone else or held in an irrevocable trust. Life insurance proceeds are included in your taxable estate at their full value. Naming a trust or a separate entity as the policy owner can remove the proceeds from your estate, but this requires setup before you die.

What is the difference between a death tax and income tax on inherited money?

A death tax is paid by the estate before heirs receive anything. Income tax on inherited money is paid by the heir if the inherited asset later generates income — for example, if you inherit a rental property and collect rent. Inherited money itself is not taxable income to the heir.