Federal Estate taxes must be paid by a person's estate when the value of the person's gross estate is more than the amount set by the federal government for the year in which the person died.

The gross estate includes the following:

• The value of all property which the decedent owned or had an interest in at the time of death;
  
• Life insurance proceeds payable to the decedent's estate or policies owned by the decedent;
  
• The value of certain annuities payable to decedent's estate or decedent's heirs;
  
• The value of property the decedent transferred within 3 years before death.

Exemption

An estate is not subject to federal estate tax if the value of the gross estate for the year of death is less than:
Year of Death Amount 1998 $625,000 1999 $650,000 2000 and 2001 $675,000 2002 and 2003 $700,000 2004 $850,000 2005 $950,000 2006 and later $1,000,000

If the value of a person's estate is greater than the above amounts, a federal estate tax return must be filed, whether or not federal estate tax is due.

The following items are deducted from a person's gross estate:

• Funeral Expenses paid out of the estate;
  
• Debts owed by decedent at the time of death;
  
• Marital deduction for property passing from estate to surviving husband or wife.