US Estate tax is imposed on the right to transfer property at the death of the taxpayer.
Estate tax is a tax on the transfer of taxable estate of a deceased. It includes the passing on off property by a Will and according to the state laws of intestacy in the absence of a Will. The estate tax is a part of the Unified Gift and Estate Tax system in the USA. Gift tax, which is the other part of the system, is a levy on transfer of property during the lifetime of the donor. If an individual gives away his estate just before dying, he may avoid estate tax but instead becomes liable to gift tax.
Besides federal estate tax there is state estate tax or state inheritance tax in many jurisdictions.
The federal estate tax is imposed on transfer of taxable assets of a deceased, who was an US citizen or resident, on his demise.
For the purpose of estate tax, the Gross Estate of a deceased consists of everything that he owns or certain interests or entitlements that he holds in valuable rights at the time of his death, at their fair market values instead of cost or acquisition price. Gross Estate might consist of real estate, insurance policy, trust, annuity, cash, securities, business interests or other assets. It covers probate as well as non probate property.
Generally Gross Estate does not include property owned by the other spouse. Irrevocable gifts, over which the deceased retained no control or power, are excluded. Life estates given to the deceased by others, over which he has no rights at death, are also not included.
Certain deductions are available to reduce the Estate Tax.
- Marital Deduction: One of the major deductions for married decedents is the Marital Deduction. All property that is included in the gross estate and passes to the surviving spouse is eligible to marital deduction.
- Charitable Deduction: If the decedent leaves property to a qualifying charity, it is deductible from the gross estate.
- Mortgages and encumbered or charged properties
- Losses during estate administration.
- Administration expenses of the estate.
Moreover, for certain farms and businesses, run as family enterprises, reductions are available. For instance, in the case of a qualifying family farm, there is a reduction from value of up to $820,000.
When asset is passed on to the other spouse or charity, there is usually no estate tax. Estate tax is on transfer of property as a consequence of the death of its owner such as passing of property from the estate of the deceased or payment of financial assets or life insurance proceeds to the designated beneficiaries.
(More:http://www.irs.gov/businesses/small/article/0,,id=98968,00.html
http://www.irs.gov/businesses/small/article/0,,id=108143,00.html)
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