The other day, I was in a conversation with someone who used these terms interchangeably.      About 15 minutes into the conversation, I was confused as to his points on the tax situation he was describing.      So, I thought I had better add this to my list of things to cover so that when you hear about the battles in Congress over this very subject – and it is coming- you will know the background behind the hubbub.


This is a made-up term that people usually use interchangeably  to refer to Estate Taxes and Inheritance Taxes.    It’s a generic term probably brought into existence to show opposition to the tax laws being churned in Congress once upon a time.

Estate taxes can be imposed at the federal level and the state level.   These are the taxes that are imposed on the transfer of an estate over and above an exemption amount.    The next question you should ask is there a state estate tax for the my current state.       It looks like Texas does not have an estate tax or an inheritance tax, but that can all change in the future as you know.   But for 2012, you can pretty much rest assured that there is no estate tax at the state level here in Texas.    If you are out of state, check on it to be sure.

On the federal level, it’s a different story.   Currently, there is a $5 million individual exemption for 2012.   That means the first $5 million is estate tax free, then the value over and above that $5 million is taxed at 35%.    Know Congress will be “discussing” the future of this tax rigorously before the end of the year to determine what will happen next year.

The estate consists of an accounting of everything you own or have certain interests in at the date of death – note this also includes life insurance.   Yowza!   I found a handy  Estate Tax Calculator on the Smart Money website that nicely illustrates the assets that are included in an estate.     State Tax Exposure Meter 

Inheritance taxes are imposed by state and are based on how much an individual inherits, not the total value of the estate.    There are only a handful of states that actually collect inheritance and Texas isn’t one of them.

To my clients who fall into the high worth category (and you know who you are), be aware of the tax changes that will be surfacing at the end of the year.   Start looking at it now.    You can quickly evaluate your assets in the financial section of your Survivorship Plan and keep an eye out for when that tax exemption changes.    Right now, it’s $5 million, but next year, it could go back to a $1 million exemption.     Double yowza!