Estimate federal estate tax, state estate or inheritance tax, and the net amount heirs actually receive.
Estate tax and inheritance tax are often confused — but they're different taxes, sometimes both applying to the same transfer of wealth.
The federal government taxes the estate of the deceased before assets are distributed. The 2024 exemption is $13.61 million per individual. Estates under this threshold owe zero federal estate tax. Above it, the rate ranges from 18% to 40%. For married couples, the unused exemption of the first spouse to die can transfer to the survivor (portability), effectively doubling the exemption.
Twelve states and DC have their own estate taxes, often with much lower exemptions than federal — as low as $1 million in Oregon. If you live in one of these states, state estate tax can apply even when federal tax doesn't.
Six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania) levy inheritance tax, which is paid by the beneficiary rather than the estate. Spouses are almost always exempt. Children typically face lower rates; unrelated heirs pay the highest rates (up to 15–16%).
The high federal exemption ($13.61M) was created by the 2017 Tax Cuts and Jobs Act and is scheduled to sunset at the end of 2025. If Congress doesn't act, the exemption will revert to roughly $7M (indexed for inflation). Estates between $7M and $13.61M could face significant federal tax starting in 2026.
Annual gifting (up to $18,000 per recipient in 2024, tax-free), irrevocable trusts, charitable bequests, and family limited partnerships are all common tools. Consult an estate planning attorney for estates over $5 million.