Estate Tax Calculator

For 2024, the federal estate tax exemption is $13.61 million per individual, meaning you can pass up to this amount to your heirs completely free of federal estate tax. For married couples, with proper planning (portability election), the combined exemption is $27.22 million. These amounts are adjusted annually for inflation. The exemption was significantly increased by the Tax Cuts and Jobs Act of 2017 and is scheduled to revert to approximately half this amount after 2025 unless Congress extends the current provisions. This means that currently, fewer than 1% of estates in the US are subject to federal estate tax, but the scheduled reduction in 2026 could bring many more estates into the taxable range, making advance planning important.

Estate tax is levied on the entire estate before it's distributed to beneficiaries — the estate itself pays the tax. Inheritance tax is levied on each individual beneficiary based on what they receive — the recipient pays the tax. The US federal government imposes an estate tax, not an inheritance tax. However, six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) impose inheritance tax, and some of these have different rates based on the relationship to the deceased (spouses and direct descendants often pay lower rates or are exempt, while distant relatives and non-relatives pay higher rates). Maryland is unique in having both an estate tax and an inheritance tax. Understanding which tax applies in your state is crucial for estate planning.

Several legitimate strategies can reduce or eliminate estate tax: (1) Annual gifting — give up to $18,000 per recipient per year (2024) without using any of your lifetime exemption; (2) Lifetime exemption gifts — use your $13.61 million lifetime exemption to make tax-free gifts above the annual exclusion; (3) Irrevocable trusts — transfer assets out of your estate into an irrevocable trust, removing them from your taxable estate; (4) Marital deduction — leave assets to your spouse tax-free (unlimited marital deduction); (5) Charitable giving — donate to qualified charities to reduce your taxable estate; (6) Family Limited Partnerships — transfer business interests at a discounted value; (7) Life insurance trusts — keep life insurance proceeds out of your taxable estate. Consult an estate planning attorney to implement these strategies effectively.

In most cases, beneficiaries do not pay federal tax on inherited assets — the estate pays any estate tax before distribution. However, there are important exceptions: (1) Inherited retirement accounts (IRAs, 401(k)s) are subject to income tax when withdrawn by the beneficiary; (2) In states with inheritance tax, beneficiaries pay tax on their share; (3) Capital gains tax applies if the beneficiary later sells inherited assets — but they benefit from a 'stepped-up basis,' meaning the cost basis is reset to the fair market value at the date of death, eliminating unrealized gains accrued during the deceased's lifetime. This stepped-up basis provision is one of the most valuable tax benefits of inheriting assets and can save beneficiaries significant capital gains tax.

Without a proper estate plan, your assets will be distributed according to your state's intestacy laws — which may not align with your wishes. If you die without a will (intestate), the court appoints an administrator, determines heirs based on state law, and distributes assets accordingly. This process is public, time-consuming, and expensive. For blended families, unmarried partners, or those with specific wishes, intestacy can produce deeply unfair results. Additionally, without planning, you may miss opportunities to minimize estate taxes, protect assets from creditors, provide for minor children through guardianship designations, and ensure business continuity. Even a basic will, combined with beneficiary designations on retirement accounts and life insurance, provides significantly more control than no plan at all.

Federal estate tax returns (Form 706) are due within 9 months of the date of death, with a possible 6-month extension. The tax must be paid by the executor or personal representative from the estate's assets before distribution to beneficiaries. If the estate includes illiquid assets like real estate or a family business, the IRS offers special payment terms: Section 6166 allows installment payment of estate tax attributable to closely held businesses over up to 14 years, and Section 6161 provides for extension of time to pay in cases of reasonable cause. State estate and inheritance tax returns have their own deadlines, typically also within 9 months. Proper liquidity planning — ensuring the estate has sufficient cash or liquid assets to pay the tax — is an important part of estate planning to avoid forced asset sales.