Estate Tax Calculator
Estimate your potential estate tax liability and plan your estate more effectively with our comprehensive calculator tool.
Understanding Estate Taxes
What is Estate Tax?
Estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them.
The includable property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. After determining the fair market value of these assets, certain deductions are allowed to arrive at your "taxable estate."
Federal Estate Tax Exemption
The federal government allows a certain amount of your estate to pass to your heirs tax-free. This is known as the estate tax exemption. As of 2023, the federal estate and gift tax exemption is $12.92 million per individual. This means that if the total value of your estate is less than the exemption amount, no federal estate taxes will be due.
The exemption amount changes periodically based on legislation and inflation adjustments:
- 2023: $12.92 million
- 2022: $12.06 million
- 2021: $11.7 million
- 2020: $11.58 million
- 2019: $11.4 million
- 2018: $11.18 million
Under current law, the exemption is scheduled to decrease to approximately $5.5 million (adjusted for inflation) in 2026 unless Congress acts to change it.
Estate Tax Planning Strategies
There are several strategies that can help reduce or eliminate estate taxes:
- Unlimited Marital Deduction: Assets passed to a surviving spouse are generally exempt from federal estate tax.
- Annual Gifting: You can give up to $17,000 per recipient per year (as of 2023) without using your lifetime exemption.
- Charitable Donations: Contributions to qualified charities can be deducted from your taxable estate.
- Irrevocable Life Insurance Trust (ILIT): By placing life insurance policies in an irrevocable trust, the proceeds can be kept out of your taxable estate.
- Family Limited Partnerships (FLPs): These can help transfer business interests to family members at a discounted value.
- Grantor Retained Annuity Trusts (GRATs): These allow you to pass the appreciation of assets to beneficiaries with minimal gift tax implications.
It's important to work with qualified estate planning professionals including attorneys, accountants, and financial advisors to implement these strategies effectively.
State Estate and Inheritance Taxes
In addition to federal estate taxes, some states impose their own estate or inheritance taxes. As of 2023, the following states have estate taxes:
State exemptions are typically lower than the federal exemption, meaning your estate may not owe federal estate tax but could still owe state estate tax.
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Frequently Asked Questions
Who has to pay estate taxes?
Generally, estates exceeding the federal exemption amount ($12.92 million for 2023) may owe federal estate tax. The executor of the estate is responsible for filing the estate tax return and paying any taxes due from the estate's assets before distributing to beneficiaries.
When are estate taxes due?
Federal estate tax returns (Form 706) must be filed within 9 months of the date of death. However, a 6-month extension can be requested. The tax payment is still due within the original 9-month period, even if an extension is granted for filing the return.
How is the value of an estate determined?
The IRS requires that the fair market value (the price at which property would change hands between a willing buyer and a willing seller) of all assets be determined as of the date of death. For some assets like stocks or bank accounts, this is straightforward. For other assets like real estate or business interests, professional appraisals may be necessary.
What's the difference between estate tax and inheritance tax?
Estate tax is imposed on the total value of a deceased person's estate before distribution to heirs. Inheritance tax is levied on specific beneficiaries who receive assets from the estate. The federal government only imposes estate tax, not inheritance tax. However, some states have inheritance taxes, which are paid by the beneficiaries rather than from the estate itself.
What is portability of the estate tax exemption?
Portability allows a surviving spouse to use any unused portion of their deceased spouse's federal estate tax exemption. For example, if a husband dies and uses only $3 million of his exemption, his widow can add the unused $9.92 million to her own exemption. This effectively allows married couples to pass up to $25.84 million (as of 2023) to their heirs free of federal estate tax. To take advantage of portability, the executor must file an estate tax return within 9 months of the first spouse's death, even if no tax is due.