The federal estate tax is a tax on the transfer of assets from a deceased person to their heirs. It's sometimes called the "death tax," but it only affects estates worth more than the exemption amount, which for 2023 is $12.92 million per individual.

How Estate Tax Works

The estate tax is calculated based on the fair market value of all assets owned at death, minus allowable deductions. The resulting "taxable estate" is subject to graduated tax rates that currently top out at 40% for the largest estates.

Common Estate Tax Deductions

• Marital deduction: Transfers to a surviving U.S. citizen spouse are generally tax-free
• Charitable deduction: Bequests to qualified charities are fully deductible
• Debts and expenses: Outstanding debts, funeral costs, and estate administration expenses
• State estate taxes: State-level estate or inheritance taxes are deductible

Estate Tax Planning Strategies

If your estate may be subject to estate tax, consider these planning strategies:

• Lifetime gifting: Use the annual gift tax exclusion ($17,000 per recipient in 2023)
• Trusts: Various trust structures can help reduce estate tax liability
• Charitable planning: Charitable remainder trusts or foundations can reduce taxable estate
• Life insurance: Properly structured life insurance can provide liquidity to pay estate taxes

Estate tax laws are complex and subject to change. For personalized estate planning advice, consult with a qualified estate planning attorney or tax professional.