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📖 8 min read
Federal estate tax, state inheritance tax, and the filing obligations most people miss.
📋 Table of Contents
Here's the good news upfront: the vast majority of estates owe zero federal estate tax. In 2024, the federal estate tax exemption is $13.61 million per person. That means an individual can pass on up to $13.61 million without owing a penny in federal estate tax. For married couples who plan properly, that doubles to $27.22 million.
For estates above the exemption, the federal estate tax rate is a flat 40% on the amount exceeding the threshold. So if someone dies with an estate worth $15 million, only $1.39 million ($15M minus $13.61M) is subject to the 40% tax — resulting in roughly $556,000 in federal estate tax.
The estate tax is calculated on the total value of everything the deceased owned at the time of death: real estate, investments, bank accounts, retirement accounts, life insurance proceeds, business interests, and personal property. Debts, funeral expenses, and administrative costs are subtracted before applying the exemption.
Even if you clear the federal hurdle, your state might have its own estate tax with a much lower exemption. As of 2024, 12 states plus Washington D.C. impose their own estate taxes, and the exemptions are significantly lower than the federal level.
States with estate taxes (2024):
State estate tax rates typically range from 0.8% to 20%, with graduated brackets similar to income tax. Some states have a "cliff" effect — if your estate exceeds the exemption by even $1, the entire estate (not just the excess) may be subject to tax. Oregon and Massachusetts are notable examples of this.
An inheritance tax is different from an estate tax, though people often confuse the two. An estate tax is paid by the estate before assets are distributed. An inheritance tax is paid by the person receiving the inheritance.
As of 2024, 6 states impose an inheritance tax: Iowa (being phased out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state that has both an estate tax and an inheritance tax.
Inheritance tax rates depend on the beneficiary's relationship to the deceased. Spouses are almost always exempt. Children and direct descendants typically pay the lowest rates (0-5%). Siblings, nieces, and nephews pay moderate rates. Unrelated beneficiaries pay the highest rates, sometimes up to 15-18%.
For example, in Pennsylvania, a child inheriting from a parent pays 4.5%, but an unrelated friend inheriting the same amount pays 15%. The same inheritance, taxed very differently depending on who receives it.
This is where people get confused, so let's be clear:
Even if no tax is owed, there may still be filing requirements. This trips up a lot of executors.
Federal estate tax return (Form 706): Required if the gross estate exceeds $13.61 million (2024). Also required if the deceased's estate is below the threshold but you want to elect "portability" — transferring the unused exemption to a surviving spouse. This is a critical planning tool that many people miss.
State estate tax returns: Required based on the state's threshold, which may be much lower than the federal level. Check your state's requirements even if the estate seems small.
Deadlines: The federal estate tax return is due 9 months after the date of death, with a 6-month extension available. State deadlines vary but are often similar. Missing these deadlines can result in penalties and interest.
While it's too late for the deceased to do estate tax planning, it's worth understanding the strategies that exist — both for the current estate and for your own future planning.
Common strategies include:
Estate taxes can feel impossibly complex, but most estates don't owe them. Settled helps you figure out whether yours does — and what to do about it.
Don't guess about tax obligations. Let Settled help you understand what's required.
We'll help you understand your tax obligations and deadlines.