Calculate federal estate tax liability based on current exemptions and tax rates. Estimate the tax impact on your estate and plan accordingly for inheritance purposes.
Estate tax is a federal tax imposed on the total value of a person's estate at the time of their death. It's sometimes referred to as a "death tax." The estate tax only applies to estates that exceed the federal exemption threshold, which is $13.99 million for 2025.
Estate planning involves organizing your assets to minimize tax liability and ensure smooth transfer of wealth to your heirs. Understanding estate tax calculations can help you make informed decisions about gifting strategies, trusts, and other estate planning tools.
Real estate, investments, savings, retirement accounts, life insurance, personal property
Subtract mortgages, funeral costs, administration expenses, charitable gifts
Add back lifetime gifts that used exemption, subtract current exemption
| Year | Lifetime Exemption | Annual Gift Exclusion | Tax Rate |
|---|---|---|---|
| 2020 | $11.58 million | $15,000 | 40% |
| 2021 | $11.7 million | $15,000 | 40% |
| 2022 | $12.06 million | $16,000 | 40% |
| 2023 | $12.92 million | $17,000 | 40% |
| 2024 | $13.61 million | $18,000 | 40% |
| 2025 | $13.99 million | $19,000 | 40% |
| Asset Type | Included | Valuation Method | Notes |
|---|---|---|---|
| Primary Residence | Yes | Fair market value | Minus any mortgage debt |
| Investment Accounts | Yes | Market value at death | Stocks, bonds, mutual funds |
| Retirement Plans | Yes | Account balance | 401k, IRA, pension plans |
| Life Insurance | Yes* | Death benefit | *If you own the policy |
| Business Interests | Yes | Appraised value | May qualify for discounts |
Reduce estate size while using annual exclusion
Lock in current exemption amounts before potential changes
Grantor retained annuity trusts, charitable trusts, dynasty trusts
| State | Exemption Amount | Top Tax Rate | Notes |
|---|---|---|---|
| Connecticut | $12.92 million | 12% | Matches federal exemption |
| Illinois | $4 million | 16% | Lower than federal |
| Massachusetts | $2 million | 16% | Much lower exemption |
| New York | $6.94 million | 16% | Cliff provision applies |
| Oregon | $1 million | 16% | Lowest exemption |
High Net Worth: Estates approaching or exceeding federal exemption levels.
Business Owners: Business interests can create large estates requiring planning.
Real Estate: Valuable real estate can push estates over exemption thresholds.
Liquidity Concerns: Ensuring cash is available to pay estate taxes without forced sales.
No Planning: Assuming exemptions will protect your estate without analysis.
Outdated Plans: Not updating plans for law changes or life events.
Poor Liquidity: Not planning for cash needs to pay estate taxes.
Ignoring State Taxes: Overlooking state estate tax obligations.
Inadequate Gifting: Not utilizing annual exclusions and lifetime exemptions effectively.
Estate Attorney: Essential for complex estate planning strategies and legal documents.
Tax Professional: Critical for understanding tax implications and optimization.
Financial Advisor: Helps coordinate overall financial and estate planning goals.
Insurance Professional: Can structure life insurance for estate planning benefits.