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:
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).
© 2010 Nolo