Estate Tax Issues*
Navigate federal and state estate tax obligations with confidence. Understanding current exemptions, compliance requirements, and executor responsibilities is crucial for proper estate administration.
Federal Estate Tax Overview
The federal estate tax is imposed on the transfer of property at death. While most estates don’t owe federal estate tax due to the high exemption amount, understanding the rules is essential for proper estate planning and administration.
Per individual ($27.98 million for married couples)
Tax Rate
40% tax rate applies to taxable estates above the exemption amount
Filing Requirement
Form 706 must be filed if gross estate plus adjusted taxable gifts exceed $13.99 million
Due Date
Estate tax return due 9 months after death (extensions available)
Portability Election
Surviving spouses can use deceased spouse’s unused exemption with proper election
State Estate and Inheritance Taxes
While federal estate tax affects relatively few estates, several states impose their own estate or inheritance taxes with much lower exemption amounts. This means estates that escape federal taxation may still face significant state tax liability.
State vs. Federal Exemptions
Most states with estate taxes set their exemption amounts far below the federal level. Only two states match the federal exemption—all other states impose estate taxes at much lower thresholds.
State Estate Tax Landscape
Currently, about 12 states and the District of Columbia impose estate taxes, while 6 states have inheritance taxes. The vast majority of these states have exemption amounts significantly lower than the federal threshold:
States at Federal Exemption
Only 2 states match the federal $13.99 million exemption (2025)
States with Lower Exemptions
All others: Range from $1 million to $12+ million, well below federal levels
Maryland
Estate Tax: $5 million exemption (2025)
Inheritance Tax: 10% on non-exempt beneficiaries
District of Columbia
Estate Tax: $4 million exemption with rates up to 16%
The 12 states with estate taxes are:
- Connecticut
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
Planning Implications
This disparity means that estates valued between state exemption amounts and the federal exemption ($13.99 million) may owe substantial state taxes while owing no federal estate tax. For example, a $7 million estate in Maryland would owe no federal estate tax but could face significant Maryland estate tax liability.
Critical Executor Responsibilities
Even when estate taxes don’t apply, executors face significant responsibilities regarding tax compliance. Failure to address these issues can result in personal liability.
Personal Liability Risk
Executors can be held personally liable for unpaid taxes and penalties if they distribute estate assets before satisfying tax obligations. This liability can extend beyond the estate’s value.
Key Compliance Areas
Income Tax Returns
Executors must file final income tax returns for the decedent and potentially estate income tax returns. This includes checking for any unfiled returns from prior years.
The IRS can assess taxes indefinitely when no return has been filed
Estate Tax Returns
Even if no estate tax is owed, filing may be required for portability elections or to start the statute of limitations running.
State Tax Obligations
State tax requirements vary widely and may include income, estate, inheritance, and property taxes.
Employment Taxes
If the decedent had employees or household workers, employment tax obligations must be addressed.
The Importance of Tax Compliance Review
Given the complexity of tax obligations and the potential for personal liability, a comprehensive tax compliance review is often worthwhile regardless of whether estate taxes apply.
Benefits of Professional Review
Risk Mitigation
Identify and address potential tax liabilities before they become problems
Compliance Assurance
Ensure all required returns are filed and taxes paid
Personal Protection
Protect executors from personal liability for estate tax obligations
Peace of Mind
Confidence that all tax matters have been properly handled
What Our Compliance Review Includes
Our comprehensive estate tax compliance review examines all aspects of potential tax liability, including:
- Review of decedent’s tax filing history
- Analysis of potential unfiled returns
- Assessment of federal and state estate tax obligations
- Evaluation of income tax requirements
- Review of employment tax obligations
- Recommendations for protecting executor from personal liability
Don’t let tax compliance issues put you at risk. Our experienced team can help ensure all estate tax obligations are properly addressed.