How Much Estate Tax Will I Pay?

The top tax bracket for the federal estate tax is currently at 40 percent. This might seem high, but as a recent article points out, very few people actually pay this tax.

Estate Tax Payment Every Year

Tax (Photo credit: 401(K) 2013)

Most estates are entirely exempt from estate tax. There is a $5,340,000 exemption from federal estate tax, meaning that estates valued at up to that amount pay nothing. This number is doubled for married couples provided they have an effective estate plan or take the proper steps to preserve the credits. As a result, only 0.14 percent of estates pay any federal estate tax at all. As to the State estate tax, the majority of state governments, including that of California, do not collect a separate state estate tax at all.

Another method for handle estate tax is purchasing a life insurance policy. Life insurance premiums can add up and become expensive for older individuals, but they are generally considerably cheaper than estate tax. Especially with proper planning, the death benefits would be free from any estate tax.

A more altruistic method to avoid estate tax is to set up a charitable remainder unit trust. The trust will make payments to you during your lifetime. When you pass away, the remainder will be donated to the charity tax free. Similarly, a charitable lead trust provides income to the charity during your lifetime. When you pass away, the remainder of the trust assets will be passed on to your beneficiary.

Additional information on the federal estate tax can be found on the IRS website.