Estate Tax

AAA

DEFINITION of 'Estate Tax'

A tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. The estate tax is mostly imposed on assets left to heirs, but it does not apply to the transfer of assets to a surviving spouse. The right of spouses to leave any amount to one another is known as the "unlimited marital deduction."

INVESTOPEDIA EXPLAINS 'Estate Tax'

When the surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit. Because the estate tax can be quite high, careful estate planning is advisable.

In 1997, a change in U.S. laws increased the value of assets that a beneficiary may exclude from federal estate taxes - though many states have their own estate taxes. With this change of laws, small business owners became able to pass on farms and other qualifying businesses to their heirs.

RELATED TERMS
  1. Custodial Agreement

    An arrangement whereby one holds an asset or property on behalf ...
  2. Dynasty Trust

    Long-term trusts created to pass wealth from generation to generation ...
  3. Generation-Skipping Transfer Tax ...

    A tax incurred when there is a transfer of property by gift or ...
  4. Form 706-GS(D): Generation-Skipping ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  5. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  6. Heir

    HeirA person who inherits some or all of the estate of another ...
Related Articles
  1. Taxes

    Tax-Saving Advice For IRA Holders

    Be informed about benefits and deductions that may apply to you and avoid costly mistakes on your return.
  2. Personal Finance

    A Guide To Financial Designations

    Find out which certifications can bring you the greatest career returns.
  3. Retirement

    Bursting Boomers' Inheritance Dreams

    Waiting for a big payload from an aging relative? The chance of cashing in is lower than you think.
  4. Retirement

    7 Reasons To Review Or Revise Your Will

    Drafting a will and locking it away for good could negatively affect your beneficiaries.
  5. Retirement

    6 Estate Planning Must-Haves

    You need an estate plan even if you don't have significant assets. Learn what you need to include in yours.
  6. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  7. Options & Futures

    Three Documents You Shouldn't Do Without

    Estate planning is not just about the division of assets after you die. Read on to save your loved ones extra grief.
  8. Retirement

    Refusing An Inheritance

    Contrary to popular belief, inheriting assets isn't always a good thing. Find out what to do if you want to disclaim them.
  9. Taxes

    A Look At The Generation-Skipping Transfer Tax

    For those who encounter this tax, it can be costly. Find out how to navigate this complicated tax arrangement.
  10. Retirement

    Get A Step Up With Credit Shelter Trusts

    Don't let unexpected taxes eat away at your inheritance or burden your heirs.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center