The IRS defines an estate tax as “a tax on your right to transfer property at your death.” The estate tax is controversial, as it is seen by some as a penalty for dying. Cash, securities, insurance, real estate, and business interests are among the items considered part of an estate. However, for individuals, only estates exceeding $5.34 million are taxed by the federal government. Most Americans, therefore, are exempt from paying the federal estate tax. The highest estate tax rate charged at the federal level is 40%.
Estate taxes are also often levied at the state level. While states frequently use lower rates, they also often have lower exemptions than the federal government’s $5.34 million cutoff. Some states have an inheritance tax, where the rate you pay depends on your relation to the deceased.