Understanding Estate Taxes
2. Expenses that reduce your estate
Estate taxes are different from, and in addition to, probate expenses which can be avoided with a living trust,* and final income taxes, which must be paid on income you receive in the year you die.
Federal estate taxes are expensive -- historically, the tax rate has been 45-55%. They must be paid in cash, usually within nine months after you die. Because few estates have the cash it has often been necessary to liquidate assets to pay these taxes.
The estate tax is, in effect, a "double tax." You've already paid income taxes on the money and assets that make up your estate. Now your estate may have to pay taxes on these assets again.
*NOTE: Probate is a court-controlled process through which your will is verified, your debts are paid and your assets are distributed. Probate costs are usually estimated at 3-8% of an estate's gross value.