Estate Tax – Will Your Estate Have to Pay?

Only estates larger than $3.5 million owe federal estate taxes. Most estates won't owe federal estate tax. This is because several tax law exemptions and deductions allow you to leave substantial amounts of property free of estate taxes. The most important of these are:

• The personal estate tax exemption. The personal exemption allows a set dollar amount of property to pass tax free, no matter who inherits it. For deaths in 2009, the personal exemption is $3.5 million. So if your estate is worth less than $3.5 million, it won't owe estate taxes when you die. If your estate is worth more than $3.5 million, your estate will owe taxes unless other exemptions or deductions apply. If you have made taxable gifts during your life, the amount of the personal exemption will be reduced. (For more about gift taxes, read Estate and Gift Tax FAQ.  Although the estate tax exemption changed significantly in the last decade -  rising from less than a million in 2001 to $3.5 million in 2009 - it is likely to remain at the current level for at least the near future.
• The marital deduction. This deduction exempts from estate tax all property left to a surviving spouse. (I.R.C. § 2056(a).) The marital deduction is not allowed for property left to noncitizen spouses. But the personal estate tax exemption can be used for property left to noncitizen spouses.
• The charitable deduction. The charitable deduction exempts all property left to a tax-exempt charity. (I.R.C. § 2055(a).)

In addition, there are several smaller exemptions including exemptions for funeral expenses, probate fees, any claims against the estate, and a portion of any estate tax paid to states or foreign countries.

There are a few estate planning tools you can use to reduce your estate tax liability.  See Reduce Estate Tax by Making Gifts and Tax-Saving Trusts. However, if your estate is large enough to trigger federal estate taxes, it would be wise to get some advice from an experienced estate planning lawyer who can help you sort through your options.



Even if your estate isn't big enough to owe federal estate tax, the state may still take a bite. Many states collect either their own estate or inheritance taxes. If you live in one of those states, there's not much you can do to avoid paying those taxes, save moving to another state. For each state's rules, see The Executor's Guide: Settling a Loved One's Estate or Trust, by Mary Randolph (Nolo).

For More Information For more information, see Nolo's Estate Tax Resource Center and  Plan Your Estate, by attorney Denis Clifford (Nolo).

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