Estate Tax Basics

• The estate tax is not paid by any specific individual; instead, the tax is paid out of the estate itself. When a person dies, all of his assets are added up to find the total value of his estate, and then the estate tax is filed and paid out of that pool of assets. The estate taxes are filed and paid using the assets in the estate by the executor of the estate who is named in the will of the deceased person.
  
  

Estate Tax Exemptions

• While many estates are subject to estate taxes, there are exemptions for states that do not meet certain minimum amounts of assets. The size of estate tax exemption changes over time. According to the IRS, estates were not required to file tax returns if the value of the estate did not exceed $1,500,000 in 2004 to 2005; $2,000,000 in 2006 to 2008; and $3,500,000 in 2009. According to USA Today, the estate tax was repealed completely in 2010 due to Bush era legislation. The estate of anyone that dies in 2010 is not subject to the estate tax.
  
  

Future Outlook

• As of Dec. 16, 2010, the future of the estate tax is uncertain. USA Today states that the estate tax exemption in place in 2010 is set to expire at the end of 2010, which would reduce the exemption amount to $1 million, unless congress passes a new tax bill before the end of 2010. If no agreement is reached, estates with assets that exceed $1 million will be subject to the estate tax starting in 2011.
  
  

Inheritance Tax

• The term "inheritance tax" is sometimes used synonymously with the estate tax, but there is a separate tax imposed by some state governments for inheritances received from estates that must be paid by the individual. Bankrate states that, inheritance taxes "are assessed by states in place of or in addition to state and federal estate taxes."