Answer: A tax on the transfer of property and other assets after a person’s death, usually only for estates worth millions of dollars.
The estate tax is a tax on the transfer of property and other assets after a person’s death (also referred to as the estate transfer tax or death tax). If the total value of your estate — the collection of everything you own — is above a certain amount, the IRS levies a tax on it before any assets can be passed on to a beneficiary.
The first $13.99 million of your estate is exempt from taxation if you die in 2025.
This is known as the federal estate tax exemption. In California, there is no separate state estate tax.
Key Takeaways
- Federal estate tax is generally due if an estate is worth more than $13.99 million for people who die in 2025
- Your estate won’t be taxed if it’s transferred to your surviving spouse
- You can decrease the value of your estate by giving away assets to others, making charitable contributions, or using an irrevocable trust as part of your estate planning
- CA has no separate estate tax
The person who handles all of the tax bills on behalf of an estate is the executor. Many people name an executor in their will, but a court appoints someone to do the job if there is no will. Keep in mind that the executor doesn’t have to pay the tax — the tax comes out of the estate’s assets.
If you’re looking to avoid estate tax or reduce your estate tax liability, you may need to reduce the value of your estate. Possible options are giving away assets before you die or moving assets you own into an irrevocable trust. You can also transfer your estate tax-free to a surviving spouse, but then your spouse may owe estate tax when they die.
WHO HAS TO PAY ESTATE TAX?
Federal estate tax is due if an estate’s value exceeds the estate tax exemption amount, which is $13.99 million for deaths in 2025. The estate tax exemption is also called the estate tax exclusion.
An individual estate may have a lower exemption than the federal amount, though, because an estate’s actual exemption is calculated as the federal exemption minus any money and assets the owner gifted to others during their life. If you gift $700,000 to your children during your life (and report it on your taxes) then the IRS will calculate your estate’s exemption as only $13.29 million when you pass away, if you pass away in 2025.
Additionally, estate tax only applies to a taxable estate. The taxable estate is calculated as the value of the gross estate — the total, fair market value of all its assets — minus certain deductions, like the value of mortgages, debts, and any assets that go to a surviving spouse or qualified charity.
The estate tax exemption could revert back to a lower amount in 2026 depending on legislation.
ESTATE TAX RATES
The federal estate tax has marginal tax brackets that range from approximately 18% to 40% . With marginal rates, you only pay a certain tax rate on the money that falls within the bracket. An example of the marginal tax rates are below:
FEDERAL ESTATE TAX RATES
| Taxable estate value above the exemption | Tax rate | Total maximum tax |
|---|---|---|
| $0 to $10,000 | 18% | $1,800 |
| $10,000 to $20,000 | 20% | $3,800 |
| $20,000 to $40,000 | 22% | $8,200 |
| $40,000 to $60,000 | 24% | $13,000 |
| $60,000 to $80,000 | 26% | $18,200 |
| $80,000 to $100,000 | 28% | $23,800 |
| $100,000 to $150,000 | 30% | $38,800 |
| $150,000 to $250,000 | 32% | $70,800 |
| $250,000 to $500,000 | 34% | $155,800 |
| $500,000 to $750,000 | 37% | $248,300 |
| $750,000 to $1 million | 39% | $345,800 |
| $1 million+ | 40% | $345,800 + 40 cents per dollar over $1 million |
David A. Arietta is available to create a plan that minimizes taxes and maximizes the inheritance for your heirs.
HOW TO AVOID ESTATE TAX
There are only a handful of ways to avoid paying estate tax:
- Decrease the value of your estate, either by gifting assets, making charitable donations, or moving certain assets into an irrevocable trust upon the death of the fist spouse. There are other more advanced options for large estates.
- Use the marital deduction to pass your estate to your spouse, tax free.
- Ultimately, your estate will have to pay tax if it’s worth more than the exemption. However, a well-crafted estate plan may help you retain your wealth and reduce your estate tax liability.
DECREASING ESTATE VALUE THROUGH GIFTS
Gifting assets is one way to decrease the value of your estate, and it still allows you to transfer assets to your intended recipients. However, you may need to pay gift tax if the assets you gift in a single year are worth more than $19,000 (annual gift excluson amount which can annually adjust) to any one person, or if the value of your lifetime gifts exceeds the estate tax exemption.
DECREASING ESTATE VALUE THROUGH CHARITABLE DONATIONS
Charitable donations are a popular way to reduce your estate’s value, but how much you can donate in a given year may be limited to 50% of your adjusted gross income. If you want to donate a significant amount, another option may be to create a charitable trust. The structure of some charitable trusts also help create income for your beneficiaries either before or after your death.
DECREASING ESTATE VALUE THROUGH TRUSTS
You can decrease your estate value by moving assets into an irrevocable trust. An irrevocable trust is a separate legal entity and any assets you transfer into the trust will belong to it instead of you in the eyes of the IRS. Setting up your trust as a credit-shelter trust could be particularly useful because it allows your surviving spouse to access the money from your estate without adding to the value of their own estate.
Related article: How do trusts work?
PASSING AN ESTATE TO YOUR SPOUSE
The marital deduction allows someone to transfer unlimited assets to their spouse — before or after death — without having to pay tax on the transfers. So any estate transferred to a surviving spouse won’t owe estate tax.
U.S. tax law also allows for a portability election, which allows a surviving spouse to take the unused lifetime exemption from their deceased spouse and add it to their lifetime exemption. If both spouses had a remaining lifetime exemption of $13 million when one spouse died, the surviving spouse could increase their own exemption to $26 million. However, the surviving spouse still needs to pay estate tax if they die with an estate worth more than their exemption. (Consider a trust, as explained in the previous section.)
An estate must file Form 706 to use the portability election, so a surviving spouse may want (the executor) to file federal estate tax forms even if no estate taxes are owed. Talk with a CPA if you’re unsure whether to file an estate tax return.
ESTATE TAX VS INHERITANCE TAX
Estate tax is paid by an estate before assets are passed on. There is no inheritance tax at the federal level or at the California state level.
We offer comprehensive services for creating and updating wills and trusts, essential for estate planning to ensure your wishes are respected and to manage your assets effectively. Wills are fundamental for detailing how your estate should be handled, appointing executors, and addressing guardianship for children, while trusts can streamline asset distribution, avoid probate, and offer control and privacy benefits. Additionally, we provide powers of attorney and advance health care directives, empowering individuals to make financial and medical decisions on your behalf if you become incapacitated, essential for everyone regardless of estate size.
Whenever possible, we work with a client’s investment and tax professionals to ensure a comprehensive plan is put together. Trust funding is also part of this practice to ensure that a trust is properly funded with a client’s present and future assets. Proper planning also includes the review of existing wills and trusts and helping to make amendments to such documents.
Contact us at (925) 472-8000 for more information or if you questions.