Estate tax is one of those taxes that most people think will decimate their money, belongings, and stocks when they die. However, estate tax does not affect very many people anymore. Let me explain both what this is and how it works.
What is Estate Tax?
Estate tax is the tax that is levied on a person’s estate upon their death when it is transferred to other parties.
When someone dies, the value (fair market value) of their possessions and belongings are added together. The amount that all of those things added together is called the “gross estate”.
From the gross estate amount, any debts owed are subtracted from the amount. That number is referred to as the “taxable estate”.
Here is an example:
When Grandma Gilmore dies, she has the following assets.
| Number | Asset | Fair market Value |
| 1 | House | $400,000 |
| 2 | Car | $25,000 |
| 3 | Stocks | $350,000 |
| 4 | Bonds | $75,000 |
| 5 | Household Items | $100,000 |
| 6 | Boat | $15,000 |
| 7 | Camper | $10,000 |
| Total | $975,000 |
In this case, Grandma Gilmore’s gross estate is $975,000.
But to determine her taxable estate we need to subtract any debts that she has.
| Number | Asset | Debt Owed |
| 1 | House | $200,000 |
| 2 | Car | $0 |
| 3 | Stocks | $0 |
| 4 | Bonds | $0 |
| 5 | Household Items | $0 |
| 6 | Boat | $0 |
| 7 | Camper | $0 |
| Total | $200,000 |
This means that Grandma Gilmore’s taxable estate is $775,000.
$975,000 – $200,000 = $775,000
Estate Tax Exemption
Just because Grandma Gilmore’s taxable estate is $775,000, doesn’t mean that her estate will have to pay taxes on that amount.
In the US we have an estate tax exemption.
That means that a person’s estate will only pay estate taxes on amounts above a particular dollar amount. In 2024 that amount is $13,610,000.
That means that Grandma Gilmore will not have any federal estate taxes because her estate is less than the exemption limit.
So someone can have several million dollars in their estate and not pay any federal taxes on that upon their death. As long as it is not over the limit.
Here is a history of the exemption limits:
| Year of Death | Limit |
| 2011 | $5,000,000 |
| 2012 | $5,120,000 |
| 2013 | $5,250,000 |
| 2014 | $5,340,000 |
| 2015 | $5,430,000 |
| 2016 | $5,450,000 |
| 2017 | $5,490,000 |
| 2018 | $11,180,000 |
| 2019 | $11,400,000 |
| 2020 | $11,580,000 |
| 2021 | $11,700,000 |
| 2022 | $12,060,000 |
| 2023 | $12,920,000 |
| 2024 | $13,160,000 |
Estate Tax as the State Level
Most states do not impose an estate tax either. However there are 12 states (plus Washington D.C.) that do impose an estate tax.
Here is what they look like:
| State | Exemption Limit | Tax Rate |
| Connecticut | $12,920,000 | 12% |
| Hawaii | $5,490,000 | 10-20% |
| Illinois | $4,000,000 | 0.8-16% |
| Maine | $6,410,000 | 8-12% |
| Maryland | $5,000,000 | 0.8-16% |
| Massachusetts | $2,000,000 | 0.8-16% |
| Minnesota | $3,000,000 | 13-16% |
| New York | $6,580,000 | 3.06-16% |
| Oregon | $1,000,000 | 10-16% |
| Rhode Island | $1,733,264 | 0.8-16% |
| Vermont | $5,000,000 | 16% |
| Washington | $2,193,000 | 10-20% |
| Washington D.C. | $4,528,800 | 11.2-16% |
In the example of Grandma Gilmore, she still would owe no state estate tax regardless of the state in which she resided.
Final Thoughts
Unless you have a really large estate, you really don’t have to worry about estate tax. However, if you live in one of the states above you might have to worry about it if the amount exceeds that state’s respective exemption limit.
But with an issue as sensitive as taxes, make sure to contact a CPA or tax attorney in your state to make sure that you are going about things legally and properly.
Here is a link to other tax articles that I have written. 🙂
You can do this!
I am here for you!
Until next time!
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