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The federal estate tax is a tax assessed on the value of the property that is transferred from the estate of a deceased person to his or her beneficiaries. Sometimes the estate tax is referred to as a “death tax,” because the owner of the property that is being transferred has died. It is important to remember that the estate tax is separate from and, in some cases, assessed in addition to, the income tax. Usually, the estate of the deceased person is the entity that pays the estate tax to the IRS.
The laws governing the federal estate tax provide all US citizens with an exemption from estate taxes. This means that a decedent who was a US citizen can transfer a certain amount of property at his or her death to his or her beneficiaries without his or her estate having to pay an estate tax. This certain amount of property is “exempt” from estate tax and is referred to as a person’s applicable exemption amount. No one, including the estate of the deceased person, will have to pay an estate tax on the transfer of the deceased person’s property so long as the total value of the property that the person transfers to others—not including the person’s spouse—is valued to be less than one’s applicable exemption amount (after taking into account the value of property given during the person’s lifetime to his or her loved ones, which is subject to the federal gift tax).