Estate Tax in the United States

Estate Tax in United States is levied at the time of transferring the taxable estates of a dead person. Estate Tax in United States is imposed on the estate properties, provided such properties are subjected to transfer through a will. The United States Estate Tax is considered to be a part of the Unified Gift and Estate Tax system of the nation.

Estate Tax in United States is levied at the time of transferring the taxable estates of a dead person. Estate Tax in United States is imposed on the estate properties, provided such properties are subjected to transfer through a will. The United States Estate Tax is considered to be a part of the Unified Gift and Estate Tax system of the nation.

The American Estate Tax is imposed at national level by the federal government of United States. There are cases, that Estate Tax is imposed on state levels as well. When levied on state levels, Estate Tax is either known by similar name or as “Inheritance Tax”. However, since 1990, the term “Death Tax” is also being extensively used by people, who intend to remove the term ‘Estate Tax’, on certain political grounds.

However, Estate Tax is generally not applicable on those properties or assets which are left by a charitable institution or a spouse. Estate Tax is levied on other types of property transfers, made due to sudden death of the owner.

 

Estate Tax in United States: various facets and types

The United States Estate Tax is of varied nature and types, depending upon the regions and levels where it is imposed.

Federal Estate Tax:

The Federal Estate Tax is levied at the time of transferring the taxable properties of each descendant, who is the inhabitant or citizen of United States of America. The calculation of the Federal Estate Tax starts with that of the “Gross Estate”. Some deductions are made from the “Gross Estate” to derive the amount known as the “Taxable Estate”. The Gross Estate: The “Gross Estate ” is an important part of the Federal Estate Tax. Gross Estate is characterized by inclusion of more properties than what are actually there in the original The value of the Gross Estate forms the basis or staring point of calculating the Estate Tax. However, the Gross Estate is subjected to certain changes and adjustments. In its unmodified stage, a Gross Estate is identified as the aggregate value of all the property of a person at the time of his/her demise. However, the property interests which do not belong to the owner at the time of his/her death is also added to the existing interests, as mentioned below:

• Certain property value in which the descendant held back a “Reversionary Interest”. In this case, the property value actually surpasses 5% of the original value of the property.
   
• The proceed amounts coming form certain life insurance policies.
   
• Certain property values which the surviving partner of the property owner have gained and enjoyed as decedent.
   
• The value of some allowances and annuities
   
• The value of properties having joint ownership
   
• The value of certain property items, transfer of which are made by the owner, immediately before three years prior to his/her date of death.
   
• The owner, prior to his/her death, transfers certain property value which is reversible in nature.

Taxable Estates and the Deductions made: On determining the value of the Gross Estate, there are several deductions made by law, to derive the value of the Taxable Estates. However, these deductions include the following few factors:

• Certain property items left for the existing spouse
• Expenditures made for administrative purposes, funerals, and claims made against the estates.
• Financial contributions made for charitable purposes

Estate Tax Rates and exemptions: As mentioned earlier, some amount of every estate is allowed tax exemption by the Federal government. However, the amount of exemption varies annually, depending upon factors like the valuation of the estate on a particular year.

State Inheritance Tax:

Apart from the Federal government, Estate Taxes are also levied on state levels, by the respective state administrations. Though Inheritance Tax and Estate Tax appears to be almost similar in nature, there are certain basic differences among them, as per the rules laid down by the international tax laws. While An Estate Tax is considered to be personal in nature, paid after the death of the estate owner, Inheritance Tax includes the estate beneficiaries. The following American states come under the jurisdiction of Inheritance Tax:

• Washington
• Pennsylvania
• New Jersey
• Missouri
• Tennessee
• Nebraska
• Wisconsin
• Virginia
• Wyoming
• West Virginia

Several techniques associated with the avoidance of the Estate Tax has recently been developed and adopted, following several complexities arising in course of paying such tax. The techniques are as follows:

• Formation of an irreversible life insurance trust by parents having children, within the permitted annual gift tax limit. This helps both the parents to get tax exemptions on relevant grounds, as life insurance policies are all estate tax exempted in nature. In case the parents possess the highest net worth and the value of the life insurance policies taken are smaller in size owing to limited premium amounts, a charitable remainder trust can be formed. This trust can help in easing off a huge part of the assets as donations made to a charitable organization.
   
• Combine the limits of tax exemption of both the spouses, either via a will or through the formation of a living trust.