The federal estate tax is a tax on the transfer of assets from a deceased individual to their heirs or beneficiaries. Often called the “death tax,” this tax is imposed on the estate itself, not on the heirs receiving an inheritance. It applies only to estates valued above a significant exemption threshold, which for 2024 is $13.61 million per person, adjusted annually for inflation according to IRS guidelines.
Understanding the Federal Estate Tax
When someone dies, all the property and assets they owned—ranging from cash, real estate, investments, business interests to valuables—make up their “gross estate.” The executor of the estate is responsible for valuing this total and filing the appropriate federal estate tax return, typically IRS Form 706.
From this gross estate, deductions are allowed to arrive at the “taxable estate.” These deductions can include:
- Outstanding debts and liabilities (e.g., mortgages, credit card balances)
- Administrative expenses related to settling the estate (legal fees, appraisal costs, executor commissions)
- Property left to qualified charities (fully deductible as charitable bequests)
- The unlimited marital deduction, allowing property left to a surviving spouse (who is a U.S. citizen) to pass tax-free
After subtracting deductions, if the remaining taxable estate exceeds the exemption amount ($13.61 million per individual in 2024), the estate tax applies to the excess value.
Federal Estate Tax Rates and Exemption
The federal estate tax system uses a progressive tax rate that starts at 18% and can reach up to 40% for estates greatly exceeding the exemption limit. For 2024, estates valued below $13.61 million are exempt from this tax. Married couples can combine their exemptions through proper estate planning to protect up to approximately $27.22 million.
The IRS provides detailed tax rate schedules within Publication 559 and the instructions for Form 706 for exact brackets and calculations.
Who Needs to Worry About the Federal Estate Tax?
Only a small fraction of U.S. estates are subject to federal estate tax—roughly 0.1% of all estates. This mostly includes individuals with substantial net worth and assets like large commercial real estate holdings or major investment portfolios. Many medium and small estates fall far below the exemption.
It is important to note that several states have their own estate or inheritance taxes with lower exemption amounts, meaning state-level estate taxes might apply even if the federal exemption is not met. Some of these state estate taxes are documented on FinHelp.io’s Estate Tax and Inheritance Tax pages.
Common Strategies to Reduce Estate Tax Burden
Wealthy individuals often use various lawful estate planning techniques to minimize estate tax exposure, working closely with qualified financial advisors and estate attorneys. Popular strategies include:
- Gifting: The annual gift tax exclusion for 2024 is $18,000 per recipient. Gifts within this limit reduce your taxable estate without incurring gift tax.
- Irrevocable Trusts: Transferring assets into such trusts removes them from your taxable estate, though control is relinquished.
- Charitable Donations: Gifts to qualified charities reduce the taxable estate dollar-for-dollar.
- Life Insurance Trusts: Establishing irrevocable life insurance trusts (ILITs) can keep large life insurance payouts out of the taxable estate.
- Family Limited Partnerships (FLPs): Used for transferring assets with valuation discounts.
- Grantor Retained Annuity Trusts (GRATs): Allows transfer of appreciating assets with potential tax advantages.
Any use of these strategies should be carefully planned with help from professionals due to complex IRS regulations.
Clearing Up Common Misconceptions
- The estate tax is not an inheritance tax; the tax is on the estate itself, not the heirs.
- The tax only affects a very small number of large estates.
- Estate tax cannot be easily avoided by last-minute transfers due to IRS gift tax rules.
- The family home isn’t seized unless the overall estate exceeds exemption amounts.
Additional Resources
For individuals interested in learning more about gift taxes and their relationship to estate taxes, see our Gift Tax article. To understand differences and details on inheritance taxes, check out our Inheritance Tax guide.
To ensure compliance, the estate executor should file IRS Form 706 when required, detailed in our glossary entry on Form 706 – U.S. Estate Tax Return.
References
- Internal Revenue Service, “Estate Tax,” https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax, accessed June 2025.
- IRS Form 706 instructions, 2024 edition.
- Investopedia, “Estate Tax,” https://www.investopedia.com/terms/e/estatetax.asp
For further authoritative details, visit the official IRS site on estate taxes at IRS Estate Tax.