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Estate or Inheritance Taxes in the United States

In the United States, the transfer of property (including money) pursuant to a will, under the laws of intestacy, or otherwise as a result of death, will subject the recipient to potential liability for estate or inheritance taxes.

The Federal Estate Tax

Federal law imposes a tax (known as an estate tax) on “the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.” To determine the amount of the taxable estate, federal law first seeks to determine what is known as the “gross estate.” The gross estate includes the total value of all the property interests of the deceased at the time of death, as well as certain property interests not owned at death, such as:

  • Any property transferred before death, but in which the decedent had a life estate (the legal right to use or reside on until death)
  • The value of certain items of property given away within three years of death
  • The value of any jointly owned property
  • The value of certain annuities
  • The value of any property in which the deceased had a “reversionary interest,” i.e., that the deceased had a right to take back
  • The value of any life insurance proceeds payable to the estate.

Once the gross estate has been established, the estate may deduct certain expenses or items of property, including:

  • Qualified charitable contributions
  • Funeral and burial expenses, costs of administering the estate, and any claims against the estate
  • Certain property items inherited by a surviving spouse—typically, there is an unlimited marital deduction for a surviving spouse, unless the surviving spouse is not a U.S. citizen.

A tentative tax will then be determined, using a federal formula.

The Unified Tax Credit

Estate Tax LawOnce the tentative tax has been set, the estate may claim a unified tax credit to offset some or all of the amount due. In 2010, Congress enacted a new law, unifying the federal estate tax credit and the federal gift tax credit. For 2014, the total amount of the credit (per decedent) is $5,340,000.The 2010 law also allows a surviving spouse to use any portion of the credit that the other spouse did not use.

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