The federal estate tax is a cut of estate value that goes to the Internal Revenue Service. When the federal estate tax comes into play, it can take a hefty bite out of the value of an estate. Luckily for most people, thresholds on this tax and numerous other factors mean that only a small percentage of people end up dealing with it, and very few estates that include small family business or farms end up on the hook for estate taxes.
The federal estate tax only kicks in for estates with a total value of over $5.49 million as of 2017. According to the Tax Policy Center, after all deductions are allowed and the threshold is considered, only about 5,190 estates in 2017 will end up owing the tax. The bulk of those paying the tax are in the top 10 percent of earners in the nation, and a fourth of all estate taxes are paid by the wealthiest 0.1 percent.
While those numbers do hedge the odds in your favor, it's important to ensure you really don't need to pay estate taxes. Working with an estate law professional can help you understand if an estate you are administrating is exempt.
Even if the estate is exempt from the federal estate tax, you might need to consider state taxes. You'll also need to file a final income tax form for federal, state and local governments if appropriate. The person responsible for these matters is usually the executor of the estate, although he or she may always seek help from other family members or from experienced professionals.