estate and gift tax: an overview
One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of their death. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent's entire estate, regardless of how it is disbursed. An alternative is an inheritance tax (a tax levied on individuals receiving property from the estate). Taxes imposed upon death can provide incentive to transfer assets before death.
Gift tax laws are generally designed to prevent complete tax avoidance by this route. The Federal Estate Tax is integrated with the Federal Gift tax so that large estates cannot be shielded from taxation by lifetime giving. Many states also impose an estate tax.
The Federal Estate Tax is set forth beginning in § 2001 of the Internal Revenue Code. (26 U.S.C. 2001). The Federal Gift Tax is set forth beginning in 26 U.S.C. 2501. Generally, the Gift Tax applies to any transfer made without receiving value in return and without regard to intent.
The Economic Growth and Tax Relief Reconciliation Act of 2001 provided for ten years of increasing exemptions from the estate tax. In 2005, the law exempts the first $1.5 million of an estate for an individual (or the first $3 million for married couples). The law includes a sunset clause for the estate tax to be restored in 2011. Recently, legislation proposed in Congress making the full repeal of the estate tax permanent; so far, no such legislation has succeeded.
Definition from Nolo’s Plain-English Law Dictionary
A tax imposed by the federal government, and by some states, on property transferred at someone's death. All property, however owned and whether or not it goes through probate court before being given to inheritors, is subject to estate tax. In practice, however, very few estates--fewer than 1%--actually owe federal estate tax. That's because the first $3.5 million of property is exempt from the tax, and you can leave an unlimited amount tax-free to a surviving spouse or charity. The federal estate tax is scheduled to be repealed entirely in 2010 and then come back with a $1 million exemption in 2011, but it's more likely that Congress will make the $3.5 million exemption permanent before 2010. Compare: inheritance tax
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:15 pm