What is an Estate Tax?
The estate tax in the United States is a tax on the transfer of the estate of a deceased person. There are Federal Taxes that apply to all US taxpayers, and in addition, some states have Estate and Inheritance Taxes that apply to property and residents of those states. The tax applies to property that is transferred via a will or according to state laws of intestacy. Other transfers that are subject to the tax can include those made through an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to beneficiaries. There is also a Federal gift tax that limits the amount that a person may gift to others.
Federal Estate Tax
Estate Tax and Gift Tax Applicable Exclusion:
The amount that can be passed free of federal tax. Whatever amount is used during lifetime is no longer available for use to pass assets at death. The Estate and Gift Tax Applicable Exclusion is currently $11.4 million.
Annual Gift Tax Exclusion:
The amount that can be given to each person you want without using any Applicable Exclusion. The Annual Gift Tax Exclusion is currently $15,000.
Generation-Skipping Tax Exemption:
This allows for giving to people who are grandchildren or other “skip persons.” It may also be used as a sophisticated way of avoiding Federal estate tax at the death of a child. Each person currently has $11.4 million of Generation-Skipping Estate Tax Exemption.
State Estate Tax
In addition to the Federal Estate Taxes, many states have a State Estate or Inheritance Tax. State Estate and Inheritance Tax may apply at a much lower level than the federal tax. It may apply when a person dies when resident in or owning property in any of the many states with such a tax.