Will My Estate Have to Pay an Estate Tax?

NB: For information on the current state of the estate tax in light of the Tax Cut and Jobs Act, click here.

One of the biggest issues of concern for my clients is the federal estate tax. Their concern stems from the fact that some politicians have labeled it the “death tax,” which gives them the impression that there is a tax to pay anytime anyone dies.

In reality, the federal estate tax has been effectively repealed for 99.8 percent of the population. That’s because although every citizen is subject to the estate tax, a certain amount of a person’s estate is exempt from taxation.

A person’s “taxable estate” is calculated by deducting funeral costs, debts, and assets transferred to a spouse from the fair market value of all assets, including life insurance, in which the decedent had interest at the time of death.

In 2017, $5.49 million is exempt from federal taxation. The exemption amount is indexed for inflation and estate tax is due only for amounts that exceed the exemption amount. That means a couple could pass almost $11 million to their heirs without any estate tax liability whatsoever.

So for most Texans, the estate tax is nothing to fear. I say for most Texans because a handful of states collect their own tax on residents’ estates. For example, my colleague, Danielle G. Van Ess in Massachusetts, pointed out that Massachusetts has a $1 million estate tax threshold, which means that assets valued at over $1 million are subject to Massachusetts estate taxes.

States that currently collect their own tax on residents’ estates include: Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey (repealed as of January 2018), New York, Oregon, Rhode Island, Vermont, and Washington.