What Is an Estate Tax Exemption?


Quick Answer

An estate tax exemption, according to the Internal Revenue Service, is allowed when estate tax is not due on an estate after its owner's death. As of 2014, exemptions are offered on estates worth less than $5.34 million, estates left to charity and estates left to surviving spouses.

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What Is an Estate Tax Exemption?
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Full Answer

Since 2012 when the American Taxpayer Relief Act was signed into law, estates that are larger than the exempted amount are taxed at a rate of 40 percent, according to BankRate. Only the amount that exceeds the exempted amount is taxed.

If a taypayer dies and doesn't use all of his exemption, he can pass on the remaining exemption to his surviving spouse, according to Nolo. That means, theoretically, a surviving spouse can leave an estate that is double the allowed size and still not have to pay estate taxes.

The Defense of Marriage Act was struck down in 2013 after a Supreme Court ruling on estate taxes and same-sex marriage. According to the Tax Foundation, the law was preventing Edith Windsor, the wife of Thea Spyer, to inherit her wife's estate without owing estate tax on it. After the act was overturned, Windsor was able to get the same estate tax exemption offered to spouses in opposite-sex marriages.

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