A Guide to the Federal Estate Tax for 2024

The federal estate tax is a levy on the assets of a deceased person’s estate before distribution to heirs. It’s crucial to understand this tax, especially if your estate approaches or exceeds the lifetime exemption threshold. For 2024, individual estates valued at $13.61 million or less are exempt, while married couples receive double the exemption amount, which is $27.22 million.

Estate Tax Rates and Exemptions

Estates exceeding the exemption limits are subject to federal taxes only on the value above the lifetime exemption. Federal estate tax rates can reach up to 40% for amounts over $1 million past the exemption amount. For example, an estate worth $14.05 million in 2024 would face a tax on the $440,000 that exceeds the lifetime exemption limit, resulting in a total estate tax of $135,400.

In addition to federal taxes, some states impose their own estate taxes. As of 2024, 12 states and the District of Columbia levy these taxes, with exemption thresholds varying by state. Consider checking your state’s specific regulations to understand potential tax liabilities.

Estate Tax vs. Inheritance Tax

It’s important to distinguish between estate and inheritance taxes. For starters, the estate tax is charged to the estate of the decedent itself, while an inheritance tax is paid by the beneficiary who’s receiving the inheritance. The federal government imposes an estate tax but not an inheritance tax, so you only need to worry about inheritance taxes in a very select group of states. In fact, as of 2024, only six states levy the inheritance tax.

Safeguarding Your Legacy

The estate tax exemption has increased significantly since 2011, with the most recent jump being to $13.61 million in 2024. To minimize estate taxes and maximize the inheritance of your beneficiaries, consider estate tax planning strategies, including charitable donations and gifting within annual exclusion limits.

Here are some viable estate planning steps you can take:

Understand the federal and state estate tax exemptions and rates.

Consider gifting strategies to reduce your taxable estate.

Consult with legal and financial advisors to navigate complex tax situations.

Are you contemplating estate taxes? Talk to a professional. Book your session here.