Estate and Gift Tax FAQ

Get informed about estate and gift tax laws.

What's Below:

Will my estate have to pay federal tax after I die?

What is the tax rate for taxable estates?

Are there ways to avoid federal estate taxes?

Can't I just give all my property away before I die and avoid estate taxes?

Will my estate have to pay federal tax after I die?

Most estates don't.  At your death, a federal estate tax is due only if the assets are worth more than $5 million. However, all property left to your surviving spouse is exempt from the tax, as long as the spouse is a U.S. citizen. Estate tax is also not assessed on any property you leave to a tax-exempt charity.

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What is the tax rate for taxable estates?

The current (2013) federal estate tax rate is 40%.

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Are there ways to avoid federal estate taxes?

Yes, here are some examples:

  • Tax-free gifts. You can give up to $14,000 per calendar year per recipient without paying gift tax. You can also pay someone's tuition or medical bills, or give to a charity, without paying gift tax on the amount. This reduces the size of your estate and the eventual estate tax bill.
  • An A-B trust, for large estates, spouses can leave their property in trust for their children, but give the surviving spouse the right to use it for life. If funded, this planning method may reduce the value of the surviving spouse's taxable estate by half the size it would have been had the deceased spouse’s assets been left entirely to the surviving spouse.
  • A "QTIP" trust, which enables couples to postpone estate taxes until the second spouse dies.
  • Charitable trusts, which involve making a sizable gift to a tax-exempt charity.
  • Life insurance trusts, which let you take the value of life insurance proceeds out of your estate.

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Can I just give all my property away before I die and avoid estate taxes?

No. If you give away more than $14,000 per year to any one person or non-charitable institution, you are assessed federal "gift tax," which applies at the same rate as the estate tax. However, giving gifts of $14,000 or less, per year, can yield substantial estate tax savings if you keep at it.

Some gifts are exempt from the gift and estate tax. For example, if your spouse is a U.S. citizen, you can give your spouse an unlimited amount of property. Any property given to a tax-exempt charity avoids federal gift taxes, and money spent directly for someone's medical bills or school tuition is exempt.

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