How Does Estate Tax Work?

The estate tax is a fee collected by the federal government when a person dies and transfers his assets to another person. Married couples do not pay estate state since the assets are already joint, but estate tax is paid if a parent or grandparent leaves their assets to their children. Some families use a federal gift tax to avoid the large taxes placed on assets after death.

Amount of Taxes

Estate tax rates are based on the progressive scale of taxation, from 18 percent to 45 percent. The lower the amount the asset, the lower the tax rate is. The value of the estate is determined by adding together all of the assets, including real estate, money, savings and investments. Currently assets must be valued over $2 million before any estate tax is due, but as of 2009 the amount has been increased to $3.5 million.

History of Estate of Tax

Estate taxes have been since at least 700 B.C., when a 10 percent tax was on imposed on estates of dead Egyptians. The U.S. Introduced death tax with the Stamp Act of 1797, and over the next decade the tax was used to pay debts to other countries. In 1916, the U.S. Congress introduced income tax and with it came estate taxation.

Significance of Estate Tax

This tax does not affect most people, as the majority of people do not have a large enough estate to qualify for it to be taxed. If you have a large estate, over 50 percent of that estate will go towards federal taxes when it reaches a certain amount. Some states also impose estate taxes, which will also increase the tax liability.

How It's Filed

An estate must file a federal estate tax return in less than nine months after the death of the person who left it. Some states grant longer periods of time if the estate is complicated by liabilities or other problems.