How does the federal government know what I own when I die? My friend said his mother paid no estate tax when her husband died.

A federal estate tax return is required only for estates that are valued at the available unified credit exemption equivalent amount, which is currently $600,000. If a person has made taxable gifts so that his or her estate is less than $600,000, these gifts must be added back into the estate. After adding them back in, if the gross estate is $600,000 or more, a federal estate tax return is required, even if no tax is due. It is likely that the estate of your friend's father was valued below $600,000 or he left it all to his wife. If it was not, then in all likelihood this oversight will be drastically corrected when your friend's mother dies. The IRS will then collect its due--and more. There can be substantial penalties for failure to file a return. If it is done willfully or without reasonable cause, the person responsible for filing the return could be subject to a fine and some time in jail.