Define: Estate Tax

Estate tax is a tax imposed on the transfer of assets from a deceased person’s estate to their heirs or beneficiaries upon death. It is based on the total value of the decedent’s estate, including cash, real estate, investments, and other assets, minus any debts, funeral expenses, and administrative costs. Estate tax is levied by some jurisdictions at the state or federal level, and the tax rate and exemption thresholds may vary depending on the jurisdiction. Estate tax is distinct from inheritance tax, which is levied on the beneficiaries who receive assets from an estate, and it serves as a means of generating revenue for the government while also potentially influencing wealth distribution and estate planning strategies. Many jurisdictions provide exemptions or deductions for certain types of assets or transfers, and estate tax laws often undergo changes based on economic conditions and legislative priorities.

The estate tax is simply a tax on assets charged by the government at one’s death, less liabilities. The total credit amount of the estate tax is applicable to the sum of the property transferred at death. When a death occurs, the estate tax is levied based on the fair market value of one’s property. Characteristically, the bearers of the estate tax are those who inherit the remaining assets. Thus, family members, friends, or anyone who becomes heir to the estate as instructed, is subject to the estate tax. However, the surviving spouse is excluded from the estate tax. This provision of the estate tax is known as “unlimited marital deduction”. There are numerous other deductions associated with the estate tax, and the tax law governing them can be quite complex. In the United States, the estate tax is also known as “the death tax”.

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This glossary post was last updated: 29th March 2024.