Most people are familiar with the subject of taxes. But what kinds of taxes need to be paid if you want to pass your wealth on to your family? For most families, that means estate taxes.
The federal government imposes taxes on the transfer of wealth. This system is comprised of three parts: a gift tax, a generation-skipping tax and the estate tax.
The estate tax is imposed on the transfer of the “taxable estate” of a deceased person. Life insurance proceeds are typically included in the gross estate, if the benefits are payable to the estate.
“The biggest misconception is that the Federal Estate Tax is a ‘death tax,’ ” said Brian Ashe, President of Brian Ashe and Associates, Ltd. in Lisle, Ill. “It is, instead, a transfer tax that applies to the transfer of property, nine months after death and only applies to a very small percentage of the population.”
Once the value of the gross estate is determined, the law provides for various deductions to arrive at the value of the taxable estate. Deductions include but are not limited to funeral expenses, administration expenses and claims against the estate; certain charitable contributions—and certain items of property left to the surviving spouse.
To calculate federate estate tax, the first step is to determine the property included in a gross estate. This includes property passed through a will, under a state’s intestacy law, or through other means.
People can also visit MyStateWill.com for more information about calculating Federal Estate Tax.
For many people, the most important deduction is for the transfer of property to the surviving spouse because it can eliminate federal estate tax for a married descendant.
However, to qualify for this deduction, the surviving spouse must be a U.S. citizen.