History

• The federal estate tax is in a state of constant flux. In 2008 the federal estate tax limitation was $2,000,000, then jumped to $3,500,000 in 2009, and then disappeared completely in 2010. However, the federal estate tax returns in 2011 with a $5,000,000 limitation. The tax rules that apply during the year in which a person dies are the rules that apply to that person's estate, even if the deceased's executor does not file the paperwork until a later tax year.
  
  

Exemptions

• Some estates are exempt entirely from the federal income tax. Property left to a surviving spouse is never subject to the federal estate tax, as long as the surviving spouse is a U.S. citizen. Similarly, property that will go to a charitable donation for a tax-exempt organization is also exempt from the federal estate tax regardless of the amount.
  
  

Taxable Estate

• The taxable estate is the total amount of your estate that will be subject to the federal estate tax. Though the rules can be vague and complicated, in general the taxable estate is all non-exempt property owned by the deceased at the time of death. Exemptions include the spouse and charitable bequests, as well as other smaller exemptions like funeral expenses and probate fees.
  
  

Personal Exemption

• After taking into account the spouse, charitable and other small exemptions, the will executor will then apply the personal exemption, which is the number that most people refer to when they speak of federal estate tax limitations. The personal exemption is worth $5,000,000 as of the year 2011. This means that any estate worth less than $5,000,000 in aggregate, after deducting spousal, charitable, and other exemptions, is not subject to the federal estate tax. As a result, most estates will never have to pay the federal estate tax.