The federal estate tax does not affect everyone. Because the federal estate tax only applies if your estate is valued above a certain dollar amount, it does not currently impact modest estates. The estate tax rate applied to your estate is the one in effect during the year of your death. For information on the federal estate tax exclusion amounts and estate tax rates for 2016 and 2017, see estate taxes.
The federal estate tax exemption amount has been fairly large in recent years. However, that could change in the very near future. Depending on the the actions of Congress and the Trump administration, we could see a change in the federal estate tax rates for 2018 and 2019. Unless substantial cuts are made in the federal budget, the government will continue to need a massive revenue increase. It could look to increase estate taxes, as well as related types of taxes. If this happens, the estate tax exemption amount will be significantly reduced, in which case more estates will be subject to this transfer tax.If your estate may be subject to the estate tax, take advantage of current tax exemption amounts by developing a strategy. See
finding an attorney.
Estate Tax Calculator
If you want a rough estimate of the amount your heirs or beneficiaries will receive after federal estate taxes, you can enter some hypothetical figures in an online estate tax calculator. One of the best is the estate tax calculator available at Bankrate.com.
This article on the U.S. estate tax was updated on January 4, 2017.
Why You Should Care About the Estate Tax
If your estate is subject to the estate tax, the amount paid in taxes will reduce the amount of
inheritance or bequest your heirs or beneficiaries receive. Instead, the money owed in taxes will be paid to the federal government and spent in its sole discretion. Perhaps you made many sacrifices throughout your life to accumulate what you have. Without proper planning, a substantial portion of your assets could be handed over to the government, in the form of taxes, when your estate is administered.
An alternative is to engage in estate planning to reduce or minimize the estate tax owed. Through effective tax planning, you can increase the amount left for your surviving spouse or partner, your children or to care for your pets. If you prefer to leave part of your estate to charity or an educational institution, estate tax planning may allow you to leave a larger bequest. Regardless of how you want your property distributed,
estate planning allows you to exercise greater control over the outcome and possibly increase your legacy.
Will Your Estate be Subject to Estate Taxes?
As federal tax laws change, the percentage of estates subject to the estate tax fluctuates. For the 2016 and 2017 tax years, fewer estates may be subject to federal estate taxes due to the large exemption amounts. Beginning in 2018 and 2019, a greater number of estates could be hit by the estate tax if the estate tax exclusion amounts are lowered by the Trump administration.
For specific figures on how many estates are typically subject to federal estate taxes, see the article Wealth Transfer Taxes: how many people pay the estate tax? by Jeffrey Rohaly and Katherine Lim. This article is available on the Tax Policy Center, Urban Institute and Brookings Institution website.
Estate Tax Resources
For an overview of the U.S. estate tax and answers to frequently asked questions about estate taxes, such as what deductions are available to reduce estate taxes, see the IRS page on estate tax.