Estate tax is something that almost all Americans don’t think about but it is something to consider for anyone who has parents over the age of sixty five or relatives that might leave something for them in their wills.

What is Estate Tax?

Estate tax is a tax that’s levied on what an individual inherits from an estate if the value of their inheritance exceeds the limit that an individual can inherit. This tax usually only applies to assets that are left to heirs and it doesn’t apply to assets that are transferred to a spouse after their spouse has passed away. Spouses have the right to leave any amount to the other thanks to the unlimited marital deduction.

State and Federal Estate Tax

In 2011 the Federal Estate Tax has returned but it’s not as bad as it might seem. Unless an individual has an estate that’s valued at $5 million dollars or less they don’t have to worry about paying the Federal Estate tax but they still have to think about paying the estate tax in your state and also an inheritance tax as well.

How to Avoid the Estate Tax

Many individuals are able to avoid leaving the burden of estate tax on their heirs by giving away their estate as gifts to individuals in their will before they die thanks to the Federal Gift Levy.

Estate Tax Broken Down

Brothers and sisters who are direct descendants of the individual who has passed away are eligible to pay an estate tax between five and ten percent. Individuals who are not direct descendants and receive an inheritance are eligible to pay an estate tax of ten to twenty percent on any inheritance that they receive.

Family Owned Businesses

In situations where a family member dies and leaves their business to a child they are excluded from paying any taxes up to $1.3 million dollars. The business must amount to fifty percent of the recipient’s estate, located in the United States and the individual who inherits the business must keep the business going for five out of ten years after they inherited it or risk paying taxes on the value of the business.

To reduces the effects on taxes associated with your passing., look into funeral plan insurance.