Intro: Welcome to the Death Readiness Podcast. I'm Jill Mastroianni, an attorney with more than a decade of practical experience and trust in estates, here to demystify the complexities of planning for the inevitable. This podcast is your guide to navigating estate planning and end of life preparation with clarity, compassion, and empowerment. Let’s spark the conversation, shift perspectives, and explore how to embrace death readiness together, courageously and thoughtfully.

[00:33] 

Hello and welcome to today's episode of The Death Readiness Podcast. I'm Jill Mastroianni, and today we're diving into a topic that causes a lot of confusion—taxes!

I’ll be talking about estate taxes, inheritance taxes, and gift taxes. 

Many people assume these taxes will apply to them, but the truth is, most Americans will never pay a dime in estate or gift taxes. 

[1:02] 

My goal today is to simplify these topics, dispel some common myths, and hopefully remove something from your worry list. 

As we move forward with The Death Readiness Podcast, I’ll being doing my best to strike a balance between the technical and the conversational. 

Some topics, like taxes—which we’re diving into today—can get pretty technical. I know these technical topics can feel like a lot, so I’ll try to alternate these more information-heavy episodes with others that are more conversational or story-driven.

[1:02] 

My goal is to make sure this journey toward death readiness feel approachable. So, if this episode feels a little heavy on the technical, hang tight—we’ll lighten things up in the next one!

Let's take a deep breath and get started!

[1:58] 

Have estate taxes always been a thing in the U.S.? Not exactly. Understanding how they came to be helps us make sense of where we are today. So, let’s take a little stroll through history.

Federal “death” taxes—as they’re sometimes called—have been introduced at different points in U.S. history, usually to raise money during a national crisis.

For example, the very first death-related tax in the United States was introduced in 1797 to fund the Navy during an undeclared war with France. 

These taxes were repealed in 1802 when the crisis with France ended.

[2:40] 

With the onset of the Civil War, the federal government, again in crisis, sought additional revenue by imposing death-related taxes with the Revenue Act of 1862.

These taxes were repealed after the end of the Civil War.

Moving to the late 19th and early 20th centuries, we see some big shifts in wealth.

The Industrial Revolution transformed the United States economy. 

Industry, rather than agriculture, became a major source of wealth, and that created some real imbalances. 

Tariffs and real estate taxes, which were historically the government’s main sources of revenue, hit the agricultural sector the hardest—while wealthy industrialists largely benefited.

To address this, a more structured tax system emerged with the War Revenue Act of 1898, introduced to fund the Spanish-American War. 

This was a tax on the estate itself – not on the beneficiaries—and is the precursor to the current federal estate tax.

The tax rates were based on two things: the size of the estate and the beneficiary’s relationship to the deceased. Interestingly, only personal property was taxed—not real estate. 

But like earlier attempts, this tax didn’t stick around for long. It was repealed in 1902, after the war ended.

[3:51] 

Then came President Theodore Roosevelt. He wasn’t just known for his rugged personality and love of the outdoors—he also had some strong ideas about taxes. 

During his time as the 26th President, from 1901 to 1909, he pushed for an estate tax and a graduated income tax as a way to address growing wealth inequality. 

And here’s a fun fact: Roosevelt still holds the title as the youngest U.S. president, stepping into office at just 42 years old. 

To put that in perspective, John F. Kennedy followed closely behind at 43, Bill Clinton and Ulysses S. Grant were both 46, and Barack Obama rounds out the top five, taking office at 47.

Then came a big turning point in 1913 with the ratification of the 16th Amendment. This officially allowed Congress to impose a federal income tax. 

And, it’s the reason April 15th—Tax Day—is a date most of us love to hate.

For me, though, April 15th is special. That’s my daughter’s birthday – her name is April. So on a day many people dread, I get to celebrate the kid I love. It’s a fun little reminder that life is about balance, even when it comes to taxes.

[5:31] 

Now, just a few years after the income tax became law, the modern federal estate tax was created with the Revenue Act of 1916. 

This was driven by two things: the need to pay for World War I, another national crisis, and the desire to limit the concentration of resources among the country’s wealthiest families. 

By 1932, another piece of the tax puzzle fell into place: a permanent tax on lifetime gifts.

Another term you might hear instead of “lifetime” gifts is “inter vivos” gift—which is just a fancy way lawyers like to say it to sound impressive.

Why do we have gift taxes? To close a loophole. 

Wealthy individuals had been giving away assets during their lifetimes to avoid paying estate taxes. T

In 1976, the Tax Reform Act brought a big shift—it created a unified gift and estate tax system. Basically, this meant there was now a single, graduated tax rate that applied to both lifetime gifts and transfers at death. 

Before this, it was actually a lot cheaper to transfer assets while you were alive than to pass them on at death. 

[7:08] 

Now let’s fast forward to 2001, when the Economic Growth and Tax Relief Reconciliation Act really shook things up. This Act gradually increased the estate tax exemption, and by 2009, it was up to $3.5 million. And believe it or not, in 2010, there was no estate tax at all. 

Yep, zero. But don’t get too excited—there was a catch. While the estate tax vanished, the step-up in basis rules—which adjust the tax basis of inherited assets—became less favorable for anyone who passed away in 2010.

Let’s take a quick tangent to talk about what 'step-up in basis' means, because it’s a term that gets thrown around a lot in estate planning, and I want you to feel comfortable with it.

Basically, when someone passes away and leaves you an asset—like a house or stocks—the tax basis of that asset gets 'stepped up' to the asset’s fair market value on the date of death.

Here’s why that matters: if you sell the asset later, you only pay capital gains tax on the increase in value from the time you inherited it.

[8:46] 

Let me give you an example. Let’s say your grandmother bought a house for $50,000 decades ago, and when you inherit it, it’s worth $300,000. With the step-up in tax basis, the tax basis resets to $300,000, the house’s fair market value at your grandmother’s date of death. So, if you sell the house for $300,000, you owe no capital gains tax. Without the step-up, the tax basis would still be $50,000, (assuming no improvements t the home that would have increased the tax basis) and you’d owe taxes on the $250,000 increase.

This is one of those tax rules that can have a massive impact on real families—not just the ultra-wealthy—so it’s crucial to understand. 

Even if the estate tax never touches your life, the step-up in tax basis almost certainly will. 

It’s especially important when making end-of-life decisions, like whether to pass assets to loved ones now or leave them as an inheritance. 

Gifting a house or stocks during your lifetime means your love ones could face a big capital gains tax bill when they sell. 

But if they inherit those same assets at death, the step-up in basis could wipe out that tax burden entirely. 

Understanding this can help you make smarter choices that protect your family from unnecessary taxes and financial stress.

[10:40] 

Next, let’s talk about a couple of key changes that shaped estate taxes in recent years. 

The 2012 American Taxpayer Relief Act set the estate and gift tax exemption at $5 million per person, which was indexed for inflation starting in 2011. It also established a top estate tax rate of 40%. President Obama signed this into law. 

Then, in 2017, the Tax Cuts and Jobs Act under the first Trump administration made another big change—it doubled the estate and gift tax exemption to $10 million per person, again adjusted for inflation. 

That’s where we are today, with a much higher threshold, specifically, $13.99 million per person, before the federal estate taxes kick in.

Next, we’re going to talk about 3 different types of taxes – estate tax, inheritance tax and gift taxes—and how they apply to us today.

Let’s start with estate taxes. What exactly are they? You hear the term a lot, but let’s break it down so it’s clear and easy to understand.

An estate tax is essentially a tax on the transfer of a deceased person’s assets. It’s based on the total value of the estate, and it’s paid by the estate itself—not by the heirs or beneficiaries. 

These taxes should be paid before assets are transferred to heirs or beneficiaries. 

The federal estate tax is a tax on the privilege of transferring property at death. 

But here’s the thing: it only applies to estates that exceed a certain exemption threshold. 

For 2025, that threshold is set at $13.99 million per person, or $27.98 million for couples. 

Generally, if you die in 2025 and your estate is below those amounts, your estate won't owe any federal estate tax. 

Now, you do have to add back in taxable gifts that you’ve made during your lifetime, but we’ll get to that a little later.

[13:14] 

So here’s where it gets tricky—this exemption is scheduled to drop significantly in 2026, down to about $7 million per person. That’s because many provisions of the Tax Cuts and Jobs Act, the 2017 tax law signed by President Trump, are set to expire at the end of 2025.

The House of Representatives’ Budget Committee Republicans have issued a “menu” of possible budget cuts that might apply in the coming months under the second Trump administration.  Among the items listed on this “menu” is the possibility that the federal estate tax law might be repealed. 

Nevertheless, it remains to be seen whether the federal estate tax will be repealed, significantly reduced, or will remain in virtually the same form.

For now, we’ll stick with what we know: the current exemption amount is high, and the maximum tax rate is 40%.

There’s a common myth that 'everyone has to pay estate taxes, but that’s simply not true. 

According to the Tax Policy Center, less than 0.2% of the estates of people who died in 2023 owed any estate tax. 

So, for the vast majority of us, estate taxes aren’t something we’ll ever have to deal with.

[14:49] 

Let me clear up a common point of confusion that might come up if you’re talking with an accountant or an estates and trusts attorney about taxes during an estate administration. 

Even if an estate doesn’t owe any federal estate tax and doesn’t have to file a federal estate tax return—called a Form 706—it might still need to file something else: a federal estate income tax return, or Form 1041.

This is for any income the estate earns during the administration process. For example, if the estate has investments, rental income, or anything else that generates income after the person has passed, that income needs to be reported. 

So, while the estate tax might not apply, the estate income tax could still come into play.

[15:59] 

Let’s talk about estate taxes at the state level for a second. There’s no estate tax in Tennessee, where I used to live, or here in Michigan, where I live now.

But what about other states? Here’s a quick list of states that had a state level estate tax in 2024 according to the Tax Foundation:

Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, 

New York, Oregon, Rhode Island, Vermont, Washington, District of Columbia

I’ll include a link in the show notes with a full list of state level estate and inheritance taxes for 2024. 

Alright, let’s move on to inheritance taxes. These are a little different from estate taxes. While estate tax is paid by the estate itself, inheritance tax is paid by the people inheriting the assets. Think of it as a tax on the privilege of receiving property from someone who passed away.

Here’s how it works: inheritance taxes are usually graduated, meaning the tax rate depends on how much property each beneficiary receives and the beneficiary’s relationship to the person who passed away.

There is no federal inheritance tax so let’s look at a few states.

[17:44] 

First, we’ll do Michigan. Yes, technically Michigan still has an inheritance tax, but it only applies to people who inherited from someone who passed away on or before September 30, 1993. For most Michiganders, it’s not something to worry about today.

In Tennessee, there is no inheritance tax either.

[18:09] 

Now, let me give you an example of a state where inheritance taxes can get complicated—New Jersey. New Jersey has had an inheritance tax since 1892. 

I have a lot of family in New Jersey. Luckily, I also have a cousin in New Jersey who’s an excellent trust and estates attorney. Shout out to Stephen Pagano! 

I don’t think Stephen even knows I’m doing this podcast but I’ll go ahead and include a link to his information in the show notes.

He’s awesome and this reminds me that I need to reach out to him and let him know about this podcast.

When someone passes away in New Jersey, the state may impose a tax on the transfer of their assets to the beneficiaries. The amount of tax depends on a few things:

Who the beneficiaries are and their relationship to the person who passed,

The value of the assets and debts the person had,

The types of assets owned, and

Whether the person lived in New Jersey or another state.

Interestingly, where the beneficiaries live doesn’t matter. And here’s something to know: New Jersey has two types of inheritance taxes—resident and non-resident. 

[19:47]

If someone did not live in New Jersey but owned property there, like real estate, their beneficiaries might still be subject to New Jersey’s non-resident inheritance tax.

Now, stepping away from New Jersey specifically, here’s the good news about inheritance taxes in general: spouses are typically exempt from inheritance taxes, and children often have lower tax rates. 

I’m aware of only six states that impose an inheritance tax, again, according to the Tax Foundation—

Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania 

So most people won’t have to deal with this tax.

[20:43] 

Can you just give it all away before you die and avoid paying any taxes? Well, not exactly. It might sound like a clever workaround, but the IRS is on to you has rules in place to prevent that kind of thing.

Here’s the deal: when you give away assets during your lifetime, those gifts are subject to something called the gift tax. While there is an annual gift tax exclusion—$19,000 per recipient in 2025—you’ll need to report any gifts above that amount.

Large gifts in excess of the annual exclusion will count against your lifetime gift and estate tax exemption, which is currently $13.99 million in 2025. So, trying to 'give it all away' to avoid estate taxes just shifts the focus to gift taxes.

And here’s something else to consider: when you give assets away during your lifetime, the person receiving them doesn’t get the step-up in tax basis they would otherwise receive at your death. Instead, the recipient receives the transferor’s tax basis.

As I mentioned before, this rule is really important so let me give you an example to drive it home. I love going to yard sales. Let’s say I’m at a yard sale and spot an old violin. It looks decent enough, so I buy it for $10, thinking it might be fun for my daughter to play around with.

[22:38] 

Later that day, my friend Jeremy—who’s a professional violinist—stops by the house. He picks it up, plays a few notes, and immediately recognizes the maker. Turns out, this isn’t just some random violin—it’s worth close to $30,000.

Now, if I decide to sell it right then and there, my tax basis is what I paid—$10. So if I sell it for $30,000, that’s $29,990 in taxable gain. But if I held onto it and my daughter inherited it after I passed, the tax basis would step up to the violin’s fair market value at my death. If it’s still worth $30,000 when she inherits it and sells it for that amount, she wouldn’t owe any capital gains tax at all.

This is exactly why understanding step-up in basis is so important—it’s not just about huge estates; it affects everyday financial decisions, like whether to sell or hold onto something valuable that’s passed down.

[23:56] 

Okay, getting back to gift taxes. The bottom line is, whether it’s through lifetime gifts or your estate after death, there are limits to how much you can transfer tax-free.

But, the limits are so high that most of us are not affected.

Let’s use an example to make this clearer. Say I give $30,000 to my friend Lauren today. That’s a generous gift, but here’s the catch: I’ve gone over the $19,000 annual gift tax exclusion (that’s the limit for 2025). So, what happens?

Well, I’ve gifted $11,000 more than the annual exclusion ($30,000 minus $19,000), which means I need to file a federal gift tax return—Form 709—to report that extra $11,000. 

But do I actually owe gift taxes on it? 

Nope. Here’s why: the most I can give away tax-free during my lifetime is $13.99 million in 2025. That’s my lifetime exemption.

Here’s how it works: when I die, the IRS is going to take a look at all the gifts I made during my lifetime that went over the annual exclusion and add them up. 

Those gifts will count against whatever is left of my estate tax exemption. So while I don’t owe any gift tax right now, I still have to report it because it will factor into my overall exemption later on.

Now, let’s say my husband agrees to help offset my gift by using his annual gift tax exclusion. This is called gift splitting and is available to spouses only. 

[26:01] 

If we decide to do this, it’s like we’re each giving Lauren $15,000, which means neither of us went over the $19,000 annual exclusion. In that case, nothing counts against my lifetime exemption at all—but we’d both still need to report the gift and make the gift-splitting election on our tax returns.

Does Lauren, the recipient of the gift, owe any taxes? No, she does not.

What if this year I give Lauren $19,000, her husband Angelo $19,000 and each of her 3 kids $19,000? 

Do I need to file a federal gift tax return? No, I do not, because the annual exclusion is per recipient.

I can give each of Lauren’s parents $19,000, too, and still not have to file a federal gift tax return.

Can I also give $19,000 to Lauren’s dog? No, I cannot. This is just a little reminder from a previous episode. Pets are property and you cannot give property to property.

So, to sum it up: you probably won’t owe any gift tax right away, but the IRS still wants to keep track of those bigger gifts, the gifts in excess of the annual exclusion amount, to see how they fit into the bigger estate tax picture down the road.

Connecticut is the only state with a state level gift tax.

[27:54] 

So that wraps up today’s overview of estate, inheritance, and gift taxes.

If there’s one thing I hope you take away, it’s that taxes don’t have to be terrifying.

Here are the key things to remember:
Most people won’t owe estate tax.
Most people won’t owe gift tax either.
Your state’s rules matter.

Taxes might not be the most exciting topic, but knowledge is power.

Thanks for listening to The Death Readiness Podcast! 

[28:34] 

Before we wrap up, I want to remind you that while I am an attorney, I'm not your attorney. The Death Readiness Podcast is for educational purposes only and should not be considered legal advice. Use of this information without careful analysis and review by your attorney, CPA and or financial advisor may cause serious adverse consequences. I provide no warranty or representation concerning the appropriateness or legal sufficiency of this information as to any individual's tax and related planning. For legal guidance tailored to your unique situation, consult with a licensed attorney in your state. To learn more about the services I offer, you can visit oversimplyllc.com.

[29:23] 

Hi, I'm April Jill's daughter. Thanks for listening to The Death Readiness Podcast. My mom always says that death readiness isn't just about planning, it's about the people you leave behind and the legacy you create for them. We hope today’s episode helps you think about how to take care of yourself and your loved ones, now and in the future. If you liked what you heard today, share this episode with someone you care about. Follow our show for free on Apple podcasts, Spotify, YouTube or wherever you're listening right now.