For Mark Roberts’ Use: The federal estate tax, also known as the “death tax”, was first enacted with the Stamp Tax of 1797 in order to pay for naval rearmament. The estate tax has a long and colorful past, having been revoked and reinstated at various times throughout American history. The current system was put into place by the Revenue Act of 1916, and remains controversial to this day.
Essentially, the estate tax is a tax on all property which transfers to others upon your death. The tax is assessed on the total value of your estate, including all stocks, bonds, life insurance policies, real estate property, and other valuable assets over your allowed exemption amount. First the value of your entire estate – everything you own – is calculated. Then deductions are taken for items like debt and administrative expenses. The allowed estate tax deduction is subtracted, and then the remaining amount is subject to the estate tax.
Current estate tax rules were established by the 2010 Tax Relief Act. Right now, the allowable exemption amount is 5.25 million dollars, with a top tax rate of 40 percent. Of course, Congress makes changes to tax laws frequently, so regular consultation with your tax professional or financial advisor is key to protecting your estate from this tax as much as possible.
The unlimited marital deduction allows the transfer of your estate, after your death, to your surviving spouse. Regardless of the size of the estate, the entire amount can be transferred to your spouse without being subject to any federal estate or gift taxes. The estate tax will apply to the estate upon your spouse’s death, however, and unless certain portability preparations have been made only your spouse’s exemption can be used. In order to preserve as much of your wealth as possible so that it can be passed to your beneficiaries, careful consultation and strategic planning with a tax professional or estate lawyer may be necessary.