The Federal Estate Tax is imposed on the value of transfer of an individual's property at his death or considered transferred on his demise, which is the decedent's "Gross Estate", before the same is reduced by various deductions, including the Unlimited Marital Deduction available for property passing to a spouse.
The tax is then computed under a unified rate schedule applicable to both gift and estate taxes.
'Gross estate' of the deceased under federal estate tax includes more property than 'probate estate' at the time of his death.
Gross estate is the starting point of calculation of estate tax. It is the value of all property interests of the deceased at the point of his death plus additions of certain other specified interests in property not owned by the deceased at the time of his death. Such specified interest includes the value of the following:
- interest held by the surviving spouse from the deceased as a dower;
- jointly owned property of the deceased that passed on by survivorship or operation of law, such as, joint tenancy or joint assets or joint bank accounts with the other spouse;
- property transferred by the deceased before death where the transfer was revocable;
- property transferred by the deceased within 3 years of his death except asset sold for full value and certain specified gifts;
- property transferred by the deceased before death retaining for himself life estate or certain powers therein;
- property which the recipient could own, possess or enjoy only by surviving the deceased;
- certain property in which the deceased retained a reversionary interest exceeding 5% of the value of the same;
- certain powers of appointment and certain annuities;
- proceeds of certain life insurance policies of which the deceased was the owner or over which the deceased had powers to designate or change the beneficiaries.
The above list of interest in property, though not owned by the deceased yet included in his estate, is not exhaustive but illustrative.
(More:http://www.irs.gov/businesses/small/article/0,,id=108143,00.html)
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