What is an estate tax?
An estate tax is a tax imposed by the federal government on an heir’s inherited portion of an estate if the estate value exceeds the limit that is set by law. This tax is not imposed on transferring the assets to a surviving spouse and that type of transfer is called as the marital deduction. When the surviving spouse dies then the beneficiaries have to owe the estate tax if the estate tax exceeds the limit. The estate tax can be very high, so it is advisable for the beneficiaries to take care of the estate planning to avoid paying a lot of sales tax. The estate tax is levied only once on the certain threshold when reached an exclusion limit. The estate tax is also known as the death tax.
An inheritance is a tax that the beneficiary or heir has to pay on the money or property they have inherited after the death of the person. It is also known as death duty.
The difference of estate tax or inheritance tax:
The estate tax is imposed on the beneficiary before the assets are handed over to the beneficiary or inherit. Whereas the inheritance tax is imposed on the beneficiary after the assets are inherited. The estate tax is only applied to the estate that exceeds the exclusion limit and the payable amount is differed based on the value of the property. In the case of inheritance tax, the tax is applied on everyone who inherits and the payable amount may differ based on the amount of property and the person who inherits. In some cases, the inheritance is exempted like spouse and children.
The gift tax is the tax that imposed on the person who receives the property or funds and it is applied to the property given away while the taxpayer is alive.
The relationship between the estate tax and gift:
An estate tax is levied on an asset and estate after the death and before handing over to the beneficiary. The gift taxes are imposed on the funds given away while the taxpayer is alive. The gift taxes help the people with large estates by giving away the assets to the heir’s when they are alive to avoid estate taxes. The gift tax is applied to the funds by considering whether the donor meant the transfer as a gift or not.
Reducing or eliminate estate tax:
- Marital transfer: Transferring some assets on the name of spouse.
- Lifetime gifts to children and grandchildren: Gifting some assets to the children and grandchildren without incurring the gift tax.
- Uniform transfer to minors: Gifting to the custodian for the benefits of children.
- Irrevocable life insurance trust: Transferring small amount into an irrevocable life insurance trust.
- Charitable donations: Transferring or gifting to the charities.
- Family limited partnership: Providing the ownership of the assets to the assist families.
The components included in the estate calculator:
- Residence & other real estates: The cost of residence or other real estates.
- Stocks, bonds, and other investment: The invested amount in stock, bonds, and investments.
- Savings, CDs and account balance: The amount saved in the account, CDs and saving.
- Vehicles, boats and other properties: The cost of vehicle boats and other properties.
- Retirement plans: The amount spent on the retirement plan.
- Life insurance benefits: The benefits received from life insurance.
- Other assets: The cost of other assets.
Liability, cost, and deductibles:
- Debts: The payable debuts like mortgages, loan, credit cards etc.
- Funeral, administration and claims expenses: Other expenses.
- Charitable contributions: The contribution made to the charitable.
- State inheritance or estate tax: The inheritance or estate tax payable.
Lifetime gifted amount:
- Gifted property or amount: The amount that is gifted tax-free in the lifetime.
Using this calculator you can calculate the federal estate tax. The normal estate tax is less the federal estate tax.