What is the Federal Estate Tax?

The following content is from the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

All information below is not legal advice but a republication of the IRS website. Be smart and always contact a competent tax attorney before acting.

The Estate Tax, also known as the "Death Tax," is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706 (PDF)). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, and $11,180,000 in 2018.

Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election.

For additional information, refer to Instructions for Form 706.

About the Author

Robert W. Boland, Jr., J.D., LL.M., is the Managing Partner at Boland Law Group, PLLC, and focuses his practice in the areas of tax planning, and business planning and tax representation. For over 40 years, Mr. Boland has been advising high-net-worth individuals and families nationwide in all aspects of estate planning, including tax-advantaged transfers of assets, multi-generational planning, the taxation of trusts and estates, charitable giving, pre-nuptial and post-nuptial planning, and issues relating closely held businesses. Mr. Boland has advised a broad range of clients, including those with inherited wealth, owners of closely held businesses and national clients with multi-jurisdictional contacts. In his planning practice, he works closely with investment advisers, insurance planners and accountants to ensure a coordinated approach to his clients' needs.

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