Death Tax

The “death tax,” technically termed the estate tax in the United States, is the tax imposed on the value of your assets when they are transferred to your beneficiaries.  Like other taxes, the estate (or death) tax can be applied on both the federal and state level.

In other countries, the death tax (estate tax) is sometimes referred to as an inheritance tax but may have different meanings or definitions.

In the United States, the estate tax (ie: death tax) is currently only required to be paid on taxable estates that come to an amount over 1 million dollars.  Only the wealthiest 2% of Americans will have this tax applied to their estates.

How Much Tax Will be Applied to Your Estate When It’s Transferred to Your Beneficiary?

The first step in determining what will be taxed is calculating your gross estate.  Your gross estate is the collective value of everything that you own plus what you have interests in at the time of your death.

The government does not base this off of what you paid for your assets, but what the current fair value of the assets are.  Any life insurance policies paid out may have the tax applied to them.

The next step is removing the deductible value from your gross estate.  Estate tax deductibles can include other costs associated with inheriting said estate, such as mortgages, estate administration expenses, qualified charity contributions, property transferred to a spouse, and other debts.

Once the net amount of your estate is determined, all the taxable gifts you’ve made since 1977 are added to the total amount.

This addition brings you to the final taxable estate or death tax that will be applied to your estate when it is transferred to your beneficiary.  Again, estates that come out to a value of less than one million dollars will not fall under the estate tax law or scope.

Death Tax Exemption

The death tax exemption, aside from those that are not large enough to apply, is usually for estates transferred to a spouse or charity organization.  These beneficiaries usually will not have to be taxed on the amount they receive.