Death taxes are taxes that the US federal government and some state governments place on a person’s estate after they die.
In most cases, death taxes only impact the very wealthy, or about 0.2% of Americans, as a person’s estate must be valued over a certain amount to be taxed. Although the majority of Americans won’t have to pay any type of death tax, it's been a hotly debated tax for more than a century.
The practice of issuing death taxes, or taxing a deceased person’s estate, can be traced back to the year 700 BCE.
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Death taxes are any type of tax placed on a deceased person’s estate. This can include liquid cash, property, stocks, or other financial assets they owned. There are two main types of death taxes in the US: the estate tax and inheritance tax. Death taxes are levied at the federal and state level, but are targeted towards the rich. Learn more about them here.
Death taxes typically only impact the rich, and the federal estate tax is no exception. Historically, only about 1% to 2% of Americans had to pay the federal estate tax, but IRS data show that between 2011-16, that number dropped even lower. Its recent data show that the federal estate tax only impacts about 0.2% of Americans. Learn about why this change occurred here.
Since the modern federal estate tax was implemented, people have felt strongly about whether or not to keep it. Much of the debate boils down to equality: Proponents say the tax creates better income equality between the rich and poor, while opponents say it's an inequitable tax only placed on the wealthy. This article analyzes different aspects of this century-old debate.
Death taxes date all the way back to 700 BCE. In the US, they can be traced to a stamp tax placed on property transfers in 1797. They’ve been used to finance wars since the Civil War, and have been levied on both the estate and beneficiary. The estate tax created during WWI to help finance war efforts is even still in effect today.
Even though the term death tax has been used for centuries, opponents of the federal estate tax started utilizing the term in the 1940s to try and sway public opinion. Since the modern federal estate tax was first established in 1916, opponents have unsuccessfully tried to get it repealed. Read about their many failed attempts here.
Estate taxes are a type of death tax placed on an estate. This means that when a person dies, any estate taxes owed are paid out of their finances before being transferred to their beneficiaries. The federal government and some states have estate taxes with varying tax rates. To learn more about the ins-and-outs of estate taxes, read this breakdown.
Eighteen states, and Washington, DC, have estate or inheritance taxes in place. Maryland is the only state that has both. Tax rates and thresholds vary per state, but most are less than the federal estate tax rate and threshold. This means an estate doesn’t have to be as lucrative to be subjected to the taxes. See if your state imposes a death tax here.
Inheritance taxes are another type of death tax. But unlike estate taxes, they’re paid by the beneficiary of the estate (the person who inherits the deceased person’s financial assets). The federal government doesn’t levy an inheritance tax, but five states do. They all have varying tax rates and rules. Learn more about the tax with this comprehensive guide.
Gifting money while you’re alive is one way people avoid estate and inheritance taxes. There is a yearly cap on how much you can give to a person before that money is taxed—but there isn’t a cap on how many people you can give money to in a year. Read more about the advantages of gifting money, plus how the gift tax works here.
Putting money and other financial assets in an irrevocable trust is one way to avoid estate taxes. There are some cons to this trust, like the fact that you can’t change the terms of the trust or assets in the trust after they’re set. But a big pro is that any financial assets in an irrevocable trust aren’t considered part of your estate, meaning they aren’t subject to death taxes.
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