The estate tax applies to property transferred by a will or other probate proceedings. Congress has set extensive limitations on who is obligated to pay estate tax. The most recent tax reform bill, enacted in 2017, more than doubled the size of estates that are excluded from estate tax liability. A handful of states have enacted their own taxes on estates or inheritances, but California is not among them. Even if a person does not expect their estate to be large enough to incur an estate tax liability, understanding how the tax works is an important part of estate planning.
What Is the Estate Tax?
The Internal Revenue Code (IRC) defines the estate tax as a tax on “the transfer of the taxable estate of every decedent who is” a U.S. citizen or resident. The executor of the estate is responsible for paying the tax.
The tax is calculated as a percentage of the value of the non-exempt part of an estate. Tax rates start at eighteen percent for values of $10,000 or less. For a value of more than $1 million, the amount of tax is $345,800 plus forty percent of the amount in excess of $1 million.