What is true regarding estate tax?

The statement that estate tax only applies to estates worth more than a threshold is accurate because the estate tax operates under a system of exemptions and thresholds. In the United States, federal estate tax only affects estates that exceed a certain value, which is established by the Internal Revenue Service (IRS) and can change over time. For instance, as of 2023, the exemption threshold is very high, meaning that only estates valued above this amount are subject to federal tax.

This exemption allows individuals to pass on a significant portion of their wealth without incurring tax liability, which supports the idea that estate tax is not universally applied. Additionally, some states have their own estate taxes, often with lower thresholds than the federal limit, but the general principle remains that estates typically must surpass a specific financial threshold to be taxed at all.

Options that state the estate tax applies to all estates or a flat rate do not accurately depict how estate tax functions, as they disregard the role of exemptions and progressive taxation based on estate value. Additionally, characterizing estate tax as a local government tax overlooks that estate taxes can be federal and vary by state, making it clear that there are larger considerations at play beyond local taxation.