Generally, any estate tax owed by a descendant's estate must be paid within nine months of the decedent's date of death. However, if more than 35 percent of the decedent's adjusted gross estate is an interest in closely held business, including a farm, the executor may elect to extend the time for paying the portion of the estate tax that is attributable to the closely held business.

If the election is made, the tax can be paid in installments. For the first five years, the estate can defer payment of principal and pay only interest. Following that, equal installments of principal and interest are paid on a yearly basis for up to 10 years. The installment payments will actually span the course of 14 years, instead of 15 years, because the due date for the last interest-only payment coincides with the due date for the first installment of estate tax.

A special, reduced interest rate of two percent is applied to the first $1 million of taxable value of the closely held business (adjusted annually for inflation.) In 2010, the two percent applied to the first $1,340,000. The interest rate on the remaining amount of taxable value is paid at a rate of 45 percent of the rate applicable to underpayments of tax--which was four percent for much of 2010.

The continued ability to pay taxes on this installment schedule will be lost if installment payments of principal and interest are not paid on time, or if 50 percent or more of the value of the interest in the closely held business is transferred to someone who is not within a specified class of family members.

If your family members who receive your small business interest will be able to make more than 2 percent on money kept in the business, or invested elsewhere, your executor may find it advisable to opt for deferred payment even if the estate has sufficient funds to pay the estate tax liability in full. Financial need to defer payment is not a requirement for this provision.