How Much Money Has to Be Inherited for it to Have an Estate Tax Federally?

The gross estate includes all transferred assets, not just money.
The gross estate includes all transferred assets, not just money. (Image: Comstock Images/Comstock/Getty Images)

When a person dies, his estate is transferred to his heirs. For the majority of households, this event does not lead to taxation. For larger estates, this transfer of assets may lead to federal estate taxation. Whether money inherited is subject to estate tax depends on the amount, the deductions available and the future of estate tax laws.

What Qualifies for the Estate Tax

The estate tax is charged on all property that is transferred at death. A person's estate is everything that the deceased owned or had an interest in at the time of death. While money is part of this amount, many other assets are included, such as property, annuities, insurance and business interests. The gross estate of the deceased is found by adding up all these assets at their current fair market value.


The inheritance eligible for taxation is found by taking applicable deductions from the gross estate. Debts on inherited property, funeral expenses and expenses related to administering the estate are deducted from the gross estate to find the taxable estate. Assets left to charity are also deducted from the estate. A surviving spouse also has an unlimited marital deduction for estate taxes. This means a wife can inherit all her husband's assets estate-tax-free no matter how large the estate.

Taxable Estate

The estate tax is designed for wealthy households and only affects the top 2 percent of households. The taxable estate must be above a certain limit for it to be eligible for taxation. The current exemption for estate taxes is $5 million per person. That means a husband and wife can leave an estate of $10 million to their heirs estate-tax-free. This exemption is for 2011 and 2012. The future of the estate tax exemption is unknown in 2011.

Estate Tax Rates

The estate tax rate applies to all assets transferred over the $5 million per person. The current estate tax rate is 35 percent. This rate is set for 2011 and 2012. If the current tax laws expire at the end of 2012, the estate tax rate will return to 55 percent. Consult a tax professional when planning the transfer of a future estate.

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