Q&A: What is the federal estate tax?

QUESTION

Q: What is the federal estate tax?

— Tax Planner

ANSWER

A: Dear  Planner,

The federal estate tax is a tax on the value of a person’s assets at the time of their death. If the total value of your estate is above a certain amount, known as the federal estate tax exemption, the IRS requires your estate to pay a tax, known as the estate tax.

As of 2022, the federal estate tax exemption is $12.06 million for individuals ($24.12 million for married couples). Simply put, if you die in 2022, and your assets are worth $12.06 million or less, your estate won’t own any federal estate tax. But if your estate is worth more than $12.06 million, the amount of your assets that are greater than $12.06 million will be taxed at a whopping 40% tax rate. 

You can reduce your estate tax liability—or totally eliminate it—by using various estate planning strategies. However, these strategies are quite complex and involve special types of trusts. To learn how to save your family from such this tax burden, meet with a Personal Family Lawyer®.