The estate tax is a common source of complaints both by and to politicians. In all of the discussion about the tax what often gets lost is how the tax actually operates. This leads many people to have misunderstandings about it. Whether you are in favor of or opposed to the estate tax it is important to understand it. Recently, Yahoo! Finance cleared up some common misconceptions in "4 Things You Probably Don't Understand About Estate Taxes," including:
Your heirs do not pay the estate tax. Any amount due is taken out of your total estate before anything is distributed to your heirs. This often lowers the amount that heirs receive.
Each Spouse has a separate estate tax exemption. They do not share their exemptions until one of them passes away and the survivor has the option of electing to use the deceased spouse's exemption later.
In some states your estate can be subject to a state estate tax that has different exemption rates than the federal estate tax.
There are a few states where your heirs might have to pay a tax on their inheritance. This is called an inheritance tax and is not the same as an estate tax.
Reference: Yahoo! Finance (March 28, 2016) "4 Things You Probably Don't Understand About Estate Taxes."