The estate tax exemption for 2012 is $5.12 million, up from $5 million for calendar year 2011. This means that if your estate's assets are worth less than $5.12 million, no tax will be due. The higher threshold is only temporary, set to expire at the end of 2012. The exemption will spring back to $1 million, the amount in effect in 2002.
There was no estate tax in 2010. In 2011, the basic exclusion was $5 million and a top federal estate tax rate of 35%. For those who died in 2009, your heirs owed no estate taxes in 2009 on the first $3.5 million (2006 -- 2008 on the first $2 million). (For example, if you die with an estate of $4,500,000 in 2009, Uncle Sam will tax $1,000,000 at 45%. And one more thing: they must be paid in cash, generally 9 months after you have died. Tax is imposed, regardless of how you disperse your property or the relationship you have to the beneficiaries (except your spouse).
State tax liability
The estate tax exemption at the state level may differ from the federal estate tax exemption. Some states follow federal law; others decouple from their federal counterpart. Even if you do not owe any federal estate tax, you may incur a state estate or inheritance tax liability.
Our recommendation is to review your estate tax planning documents for any changes in your circumstances and how these changes in the federal estate exemptions affect your estate plan.