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Understanding Estate Taxes: Debunking the Myth of the "Death Tax"
4/19/20262 min read
Understanding the Estate Tax
Generally, when people talk about the "estate tax," they are referring to the federal tax applied to a decedent’s taxable estate, which is generally comprised of their assets, including cash, property, and investments. The tax is calculated based on the value of the taxable estate and is only imposed when the estate exceeds a certain threshold. As of 2026, the federal estate tax applies to estates valued at $15 million or more for individuals and $30 million for married couples using portability. So, for the vast majority of Americans, the federal estate tax will not apply. That isn't to say, however, that no estate tax will apply.
The Difference Between Federal and State Estate Taxes
While the federal estate tax is uniform across the United States, some states have enacted their own estate tax laws, each with their own unique thresholds and rates. State estate taxes can vary significantly, with some states imposing a tax on estates valued far below the federal threshold. For example, Illinois, where I am barred and practice, imposes an estate tax on any taxable estate greater than $4 million. Given the variety of differing tax schemes among the states, depending on where you live, even if you are below the federal estate tax exemption, you may still be on the hook for an estate tax at the state level.
Tax Planning to Eliminate an Estate Tax
Just because someone has accumulated significant assets during their life doesn't necessarily mean that they will incur an estate tax. One of the more significant benefits of doing estate planning early is the ability to implement specific strategies to reduce or eliminate future estate taxes at the federal and state levels. For Illinoisans, especially those who own their home or any land, it can be surprisingly easy to accumulate enough assets during life to trigger the Illinois estate tax. If you think you may be one of those individuals and would like to learn about your options to reduce or eliminate any future estate tax, please reach out or schedule time with me to discuss your situation by using the link below.
In summary, be wary of any information source that uses the term "death tax" as a means to instill fear or uncertainty when it comes to how the government will tax your assets after you pass. There is no "death tax." With the federal estate tax exemptions being so high, most people will never have to worry about incurring a federal estate tax. And even if you have assets sufficient to cross a state threshold, there are many options available to reduce or even completely eliminate that state estate tax.
Estate planning is already complicated enough, both intellectually and emotionally, but it is made even more complicated by the proliferation of inaccurate or misleading information. In order to demystify the process, my estate planning practice aims at educating my clients on the facts and underlying principles so that each client is informed so that they can make the best decisions possible for their unique situation.
What is the "Death Tax"?
The term "death tax" is often used colloquially to describe a tax imposed on your estate after you pass away, and is often used in a way that suggests there is an automatic tax imposed simply for dying. In reality, there is no specific tax imposed on your hard-earned money just because you died. Instead, what does exist is a tax that applies to certain assets of a deceased person before they are transferred to their heirs. However, this estate tax applies only when the deceased's estate exceeds a certain threshold.