The Estate Tax

The estate tax is a tax on at-death property transfers made by a decedent. A wide-range of property is subjected to the estate tax, whether such property is transferred with or without a will. Proponents of the estate tax believe the tax is vital to ensuring everyone has a fair shot at living the American Dream. In other words, advocates see inequity in allowing affluent families to retain large amounts of their wealth perpetually. Opponents, on the other hand, emphasize the hard work these families put forth in building their respective nest-eggs for younger generations. Regardless of the debate, the modern United States estate tax, having been imposed since 19161, appears here to stay.

The majority of estates, though, will never face estate tax liability. Under current law, estates can transfer up to $5,250,0002 tax-free. Additionally, all property left to a surviving spouse (U.S. citizens only) or a qualifying charity is exempt from the estate tax. Despite these seemingly lenient transfer laws, plenty of estates still forfeit large amounts of money to the federal government via the estate tax. In these situations, estates currently pay up to a 40% estate tax on all property transfers in excess of the $5,250,000 exemption.

Both the estate tax exemption amount and the rate frequently change. Since 2003, the exemption has ranged between $1,000,000 and $5,250,0001 while the rate has fluctuated from 35% to 49%.

In 2010, the estate tax was subjected to a temporary, one-year repeal
The Unified Credit (Code Section 2010 and 2505) ties the estate tax together with the gift tax. So, the estate tax exemption is subject to reduction by the amount of taxable gifts made by the decedent during his lifetime.

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