When Does An Estate Become Subject to the Federal Estate Tax?

An estate becomes a taxable entity (just like a business or an individual) with the death of an individual and continues to exist until all the assets are disbursed to its heirs. Your personal representative will file tax returns for the estate (Form 706) to show estate assets and an estate income tax return (Form 1041) to report any income generated by the estate.

Before the tax is calculated, your gross estate of money, real property and other assets you had an interest in at the time of death, less the charitable and marital deductions, estate administration expenses, and other allowable deductions are tallied by the IRS to figure your taxable (net) estate. Various credits are subtracted to determine the estate tax due.

The federal tax is payable if the taxable estate exceeds the decedent's exemption. The 2017 Tax Cuts and Jobs Act increased the exemption amount, applicable in 2018 and expiring at the end of 2025, to $11.2 million for an individual (a married couple can shield $22.4 million)(indexed for inflation).  However, those amounts will revert to the 2017 levels in 2026--$5.49 million per person, or if married, $11.2 million.

What assets are included in your gross estate and how much each item is worth is closely scrutinized by the IRS and often is the source of irritating squabbles between the estate and the IRS.