Category Archives: federal estate tax

Overview of Estate Taxes in 2023

At death, a person’s assets could be subject to estate taxes and inheritance taxes depending on where they lived and how much they were worth.  Frankly, most estates are too small to be charged a federal estate tax.  In 2023, the exemption amount is $12.92 million.  But, in 2025 the amount is set to go to $5 million, adjusted for inflation, unless Congress acts.  As for states, most do not have an estate tax – levied on the estate — nor an inheritance tax, assessed against the recipient of an inheritance by the state where the recipient lives.  Surviving spouses are generally exempt from these taxes, regardless of the value of the estate or inheritance.

The IRS requires estates with combined gross assets and prior taxable gifts exceeding $12.92 million for 2023 to file a federal estate tax return and pay the relevant estate tax. The portion of the estate that’s above this $12.92 million limit in 2023 will ostensibly be taxed at the top federal statutory estate tax rate of 40%. In practice, various discounts, deductions, and loopholes allow skilled professionals to pare the effective rate to well below that level.  

Anything in the estate that is distributed to a surviving spouse is not counted in the total amount and is not subject to estate tax.  The right of spouses to leave any amount to one another is called the unlimited marital deduction.  But, when the surviving spouse who inherited the estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit. Other deductions, including charitable donations or any debts or fees that come with the estate, are also excluded from the estate amount calculation.

An heir due to receive money or assets can choose to reject the inheritance by disclaiming it or signing a waiver declining the inheritance.  The executor of the Will would then name a new beneficiary of the inheritance.  An heir might choose to waive an inheritance to avoid paying taxes or having to maintain a house or other structure. A person in a bankruptcy proceeding might want a disclaimer so that the property can’t be seized by creditors. 

Connecticut, Hawaii, Illinois, Maine, Massachusetts, Maryland, New York, Oregon, Minnesota, Rhode Island, Vermont, Washington State and the District of Columbia collect estate taxes.  Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania collect inheritance taxes.  As with federal estate tax, these state taxes are collected only above certain thresholds. And even at or above those levels, the person’s relationship to the person who died may avoid some or all taxes. Again, surviving spouses and descendants of the deceased rarely, if ever, pay this levy.