Estate Tax Calculator
The federal estate tax applies to estates exceeding the exemption amount. For 2024, the exemption is $13.61 million per individual. This calculator estimates your estate tax liability after applying the unified credit.
Understanding the Federal Estate Tax
The federal estate tax is levied on the transfer of property at death, but due to the historically high exemption of $13.61 million in 2024, it affects fewer than 1% of all estates. The tax applies to the gross estate, which includes all assets owned at death: real estate, investments, retirement accounts, life insurance death benefits, business interests, and personal property. From this gross estate, certain deductions are subtracted including debts, funeral expenses, administration costs, and the unlimited marital and charitable deductions. The resulting taxable estate, combined with any taxable gifts made during lifetime, determines the tentative tax using a graduated rate schedule from 18% to 40%. The unified credit, based on the exemption amount, is then subtracted to arrive at the actual tax owed. This unified system means that lifetime gifts and estate transfers share the same exemption, so large gifts during life reduce the available exemption at death. Proper estate planning can significantly reduce or eliminate estate tax liability through strategic use of trusts, gifting, and charitable planning.
Estate Planning Strategies to Minimize Tax
For estates that may exceed the exemption, several planning strategies can reduce or defer estate taxes. The unlimited marital deduction allows assets to pass to a surviving spouse completely tax-free, though the tax is merely deferred until the second spouse's death. Irrevocable life insurance trusts remove life insurance proceeds from the taxable estate. Grantor retained annuity trusts (GRATs) transfer asset appreciation to heirs at reduced gift tax cost. Qualified personal residence trusts freeze the value of a home for transfer tax purposes. Family limited partnerships can provide valuation discounts for business and investment assets. Annual exclusion gifts of $18,000 per recipient in 2024 remove assets from the estate without using any lifetime exemption. Charitable remainder trusts provide income to the grantor while ultimately benefiting charity and reducing estate taxes. The current high exemption amount is scheduled to sunset after 2025, potentially dropping to around $7 million, making advance planning especially important for estates in the $7-14 million range that could become taxable under the lower threshold.
The Sunset of the Current Exemption
The current $13.61 million estate tax exemption was established by the Tax Cuts and Jobs Act of 2017 and is scheduled to sunset on December 31, 2025. Unless Congress acts, the exemption will revert to approximately $7 million per person, adjusted for inflation, beginning in 2026. This potential reduction has created urgency for individuals with estates between $7 million and $14 million to take action while the higher exemption exists. Strategies include making large gifts now to lock in the current exemption amount, the IRS has confirmed that gifts made under the higher exemption will not be clawed back even if the exemption decreases. Creating irrevocable trusts funded with assets up to the current exemption amount can permanently remove those assets from the taxable estate. For married couples, proper planning can shelter up to $27.22 million from estate taxes under current law. However, these strategies require giving up control of the gifted assets, so they must be balanced against your own financial security and lifestyle needs. Consulting with an estate planning attorney and tax advisor is essential given the complexity and stakes involved.
Frequently Asked Questions
What is the estate tax exemption for 2024?
The federal estate tax exemption for 2024 is $13.61 million per individual, or $27.22 million for married couples using portability. Estates below this threshold owe no federal estate tax. This exemption is scheduled to revert to approximately $7 million in 2026 unless Congress acts.
What is the estate tax rate?
The federal estate tax uses a graduated rate structure from 18% to 40%. However, because of the unified credit that effectively exempts the first $13.61 million, the marginal rate on taxable amounts above the exemption is 40%. Most estates that owe tax pay close to the 40% rate on the excess.
What deductions reduce the taxable estate?
Key deductions include the unlimited marital deduction for assets left to a surviving spouse, the charitable deduction for bequests to qualified organizations, debts and mortgages owed by the deceased, funeral expenses, and estate administration expenses including executor and attorney fees.
What is portability of the estate tax exemption?
Portability allows a surviving spouse to use any unused portion of the deceased spouse's estate tax exemption. If the first spouse dies with a $5 million estate, the unused $8.61 million exemption can transfer to the surviving spouse, giving them a combined exemption of $22.22 million.
Do all states have estate taxes?
No. Only about 12 states and the District of Columbia impose their own estate taxes, often with lower exemption thresholds than the federal level. Some states have exemptions as low as $1 million. Check your state's laws, as you may owe state estate tax even if you owe no federal estate tax.