What Is an Estate Subject to Death Taxes?
When someone passes away, their assets don’t just disappear — they become part of what’s known as their estate. Depending on the total value of that estate, it may be subject to death taxes, also known as estate taxes or inheritance taxes. Understanding whether your estate might be subject to these taxes is an important step in effective estate planning.
Defining the Estate
Your estate includes everything you own at the time of your death:
Real estate (homes, land, investment property)
Bank accounts and cash
Retirement accounts (IRAs, 401(k)s)
Investments and business interests
Life insurance proceeds (in some cases)
Personal property (vehicles, jewelry, art, etc.)
Each of these assets is counted toward the total taxable value of your estate.
What Are Death Taxes?
There are two main types of taxes to consider:
Estate Tax – Paid by the estate before distributions are made to beneficiaries. It’s based on the total value of the estate.
Inheritance Tax – Paid by the beneficiary who receives assets, depending on state law and their relationship to the deceased.
At the federal level, only very large estates (those exceeding the federal exemption amount) are subject to estate taxes. However, some states have their own estate or inheritance taxes with lower thresholds.
How to Know If Your Estate Is Taxable
Your estate may be subject to death taxes if:
Its total value exceeds federal or state exemption limits.
You own property in multiple states, each with different tax laws.
You have life insurance policies owned by you, not by a trust.
You have business or investment interests that increase estate value.
Strategies to Reduce or Avoid Estate Taxes
Proper planning can help minimize taxes and preserve wealth for your loved ones. Strategies may include:
Creating a trust to hold assets outside your taxable estate.
Gifting assets during your lifetime (within annual limits).
Designating ownership structures to avoid unnecessary inclusion.
Using life insurance trusts to exclude policy proceeds.
Charitable giving to reduce taxable value.
The Bottom Line
Even if your estate doesn’t seem large, it’s wise to review your asset structure and estate plan regularly. Estate tax thresholds change, and what isn’t taxable today may be taxable tomorrow. Working with an experienced estate planning attorney can ensure your loved ones receive as much of your legacy as possible — not the tax authorities.