Estate taxes — what most families actually need to know (less than they fear)

Reviewed by a licensed elder law attorney

Federal estate tax only applies to estates exceeding $13.61 million per person in 2024, and that threshold covers the vast majority of American families. Some states impose their own estate taxes at lower thresholds. Two numbers determine whether your parent's family needs to plan for this: the total value of the estate and the exemption in your parent's state.

Most Families Do Not Owe Federal Estate Tax

The moment you hear "estate tax," something in your stomach tightens. You picture the government swooping in after your parent dies, taking half of everything they worked for. The word "tax" attached to death feels punitive, and you start wondering whether you need to hire an expensive lawyer just to survive financially.

The anxiety around estate taxes exceeds the reality for most families. According to the IRS, fewer than 0.1 percent of estates owe any federal estate tax. In 2024, the federal estate tax exemption is $13.61 million per person. If your parent's estate is worth less than that, there is no federal estate tax due. For a married couple, the exemption can be effectively doubled through portability, which allows a surviving spouse to use the unused exemption from the deceased spouse's estate, as long as the proper return is filed.

That exemption is scheduled to drop to roughly $7 million per person after 2025, when the Tax Cuts and Jobs Act provisions sunset. At the lower threshold, more families will be affected, but the vast majority still will not. The IRS projects that even after the reduction, federal estate tax will apply to fewer than 0.5 percent of estates.

State-level estate taxes are a different matter. According to the Tax Foundation, 12 states and the District of Columbia impose their own estate taxes as of 2024, and some set their exemptions as low as $1 million. A $2 million estate in Oregon, Massachusetts, or Connecticut may trigger state estate tax. The same estate in Texas, Florida, or most other states faces no state estate tax at all.

Two numbers tell you whether estate tax is something your family needs to plan for: the total value of your parent's estate and the exemption threshold in the state where your parent lives. If your parent's estate is well below both the federal and state exemptions, estate tax planning is not your immediate priority.

Understanding What Counts as the Estate

The taxable estate includes everything your parent owns: the house, bank accounts, investments, retirement accounts, life insurance death benefits, vehicles, and valuable personal property. Life insurance is the item that surprises most families. If your parent owns a $500,000 life insurance policy, that death benefit is included in the taxable estate even though the beneficiary receives it outside of probate.

For married couples, assets left directly to a surviving spouse generally qualify for the unlimited marital deduction, meaning they pass tax-free. The tax question comes when the surviving spouse dies and the combined estate passes to children or other heirs.

You need to know what your parent actually wants to happen to their money and property. Different distribution strategies affect taxes differently. Charitable gifts reduce the taxable estate. Gifts made during your parent's lifetime reduce the estate's value (subject to annual and lifetime gift tax exclusions). Trust structures can shift assets out of the taxable estate. All of these strategies require professional guidance to implement correctly.

When Professional Planning Is Needed

If your parent's estate is clearly below both the federal and state exemptions, the immediate focus should be on other parts of the estate plan: making sure there is a will or living trust, that beneficiary designations are current, and that someone is authorized to manage things if your parent becomes incapacitated.

If your parent's estate is close to or exceeds the applicable exemption, an estate planning attorney is necessary. Estate tax strategies are specific to your state, your family structure, your parent's intentions, and current law. An attorney who specializes in this area can discuss options like credit shelter trusts, spousal lifetime access trusts, charitable remainder trusts, or strategic gifting programs. The cost of professional planning is almost always far less than the tax that would be owed without it.

The federal exemption is set to decrease significantly after 2025. If your parent's estate is close to the current threshold, planning now while the higher exemption is available provides more protection than waiting. If the estate is clearly under even the reduced threshold, urgency is lower.

For married couples, the surviving spouse's situation deserves attention. Portability of the unused exemption is not automatic; it requires filing IRS Form 706 (the estate tax return) after the first spouse's death, even if no tax is owed. Missing this filing deadline can cost the surviving spouse millions in lost exemption. According to the ABA, this is one of the most commonly overlooked estate tax planning steps.

Taking a Practical First Step

Start by organizing your parent's financial information. Collect documents showing what accounts exist, what assets are owned, who the beneficiaries are on life insurance and retirement accounts, and approximate current values. This gives you a clear picture of whether the estate is anywhere near the exemption thresholds, and it is information any attorney will need.

Check whether your parent's state has an estate tax and what the exemption is. The Tax Foundation publishes current state-by-state data. If your parent's state has no estate tax and the estate is well below the federal exemption, you can focus your energy elsewhere.

If the numbers suggest estate tax could be relevant, schedule a consultation with an estate planning attorney. Do not attempt estate tax planning through online services or templates. The strategies are technical, state-specific, and consequential enough that professional guidance is worth every dollar.

The timeline for action depends on your parent's health, age, and the complexity of the estate. If your parent is healthy and there is time, you can plan methodically. If your parent is older or has health concerns, getting a plan in place while they have full legal capacity matters, because these decisions cannot be made after incapacity.

Estate taxes are real, and they matter for families with significant wealth. But they are not the monster that most people fear. The vast majority of families either owe nothing at all or can reduce their exposure through straightforward planning. Understanding your specific situation is the first step, and it often takes less time than the worrying did.

Frequently Asked Questions

What is the federal estate tax exemption for 2024?
The federal exemption is $13.61 million per individual. Estates valued below this threshold owe no federal estate tax. For married couples, portability can effectively double this amount if the proper return is filed after the first spouse's death.

Will the exemption amount change?
Yes. The current exemption is set by the Tax Cuts and Jobs Act and is scheduled to sunset after 2025. The exemption is projected to drop to approximately $7 million per person (adjusted for inflation) starting in 2026 unless Congress acts to extend or modify the current law.

Does my parent's state have an estate tax?
As of 2024, 12 states and the District of Columbia impose estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Exemption amounts range from about $1 million to over $13 million depending on the state.

Is life insurance included in the taxable estate?
Yes, if your parent owns the policy. The death benefit is included in the estate's value for tax purposes even though it passes to the beneficiary outside of probate. If estate tax is a concern, an irrevocable life insurance trust (ILIT) can remove the policy from the taxable estate, but it must be set up at least three years before death to be effective.

What is portability and how does it work?
Portability allows a surviving spouse to use the deceased spouse's unused federal estate tax exemption in addition to their own. To claim it, the executor must file IRS Form 706 within nine months of the first spouse's death (with a six-month extension available). Missing this deadline forfeits the unused exemption permanently.

Do I need to file an estate tax return even if no tax is owed?
A federal estate tax return (Form 706) is required for estates exceeding the filing threshold. Even if the estate is below the exemption and no tax is due, filing the return is necessary to elect portability of the unused exemption for a surviving spouse.