Estate Tax
What does "Estate Tax" mean in law?
The federal estate tax, imposed under IRC Sections 2001-2210, is an excise tax on the transfer of a decedent's taxable estate at death. The taxable estate is calculated by determining the gross estate (all property in which the decedent had an interest at death, including life insurance proceeds, jointly held property, and certain transferred property under Sections 2031-2046), subtracting allowable deductions (debts, administrative expenses, charitable bequests under Section 2055, and the unlimited marital deduction under Section 2056). A unified credit effectively exempts estates below a threshold amount (currently $13.61 million per person, indexed for inflation). The estate tax interacts with the gift tax through the unified transfer tax system, and the stepped-up basis rule under Section 1014 eliminates unrealized capital gains at death.
Definition
The federal estate tax, imposed under IRC Sections 2001-2210, is an excise tax on the transfer of a decedent's taxable estate at death. The taxable estate is calculated by determining the gross estate (all property in which the decedent had an interest at death, including life insurance proceeds, jointly held property, and certain transferred property under Sections 2031-2046), subtracting allowable deductions (debts, administrative expenses, charitable bequests under Section 2055, and the unlimited marital deduction under Section 2056). A unified credit effectively exempts estates below a threshold amount (currently $13.61 million per person, indexed for inflation). The estate tax interacts with the gift tax through the unified transfer tax system, and the stepped-up basis rule under Section 1014 eliminates unrealized capital gains at death.
Example
When a decedent dies with a gross estate valued at $15 million, the executor must file an estate tax return, and after applying the unified credit exempting the first $13.61 million, the estate owes tax at a 40% rate on the remaining $1.39 million.