The simplest definition of the federal estate tax is "a tax on the transfer of property from your estate to others." Basically if you own something today and somebody else owns it after you die, the federal estate tax comes into play for that transfer of ownership.

Don't panic, though! Even though the federal estate tax technically applies to every single transfer of ownership, your estate may not actually owe any taxes. The potential tax depends on your estate's total value and how that total compares to the exemption amount magic number.

The federal estate tax is part of a unified tax system along with the gift tax. Essentially, between the gift tax and the federal estate tax, everything you own is at least considered for taxation when you transfer ownership, either while you're alive or after you die.

"Everything you own" includes property that

• Is mentioned in your will.
• Is covered by a will substitute, such as joint tenancy or a living trust.
• Is covered by your state's intestate laws if you don't have a completely valid will and therefore die either intestate or partially intestate.

So when we say the federal estate tax applies to everything you own at the time of your death, we mean everything! So don't think that "if I leave something out of my will" (or if you don't even have a will) the estate tax won't catch up with you!