estate tax

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".

Notes:

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. In this change of laws, small business owners became able to pass on farms and other qualifying businesses to their heirs.

See also: Assets, Beneficiary, Bequest, Escheat, Estate, Estate Planning, Martital Deduction, Will

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Estate tax

A federal or state tax imposed on an individual's assets inherited by heirs.

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estate tax

A tax on the estate of the deceased before any distribution is made to the heirs. A federal unified gift and estate tax provides an exemption before any tax is paid. Although some states also levy an estate tax, it is generally at a much lower rate than the federal tax. Also called death tax. Compare inheritance tax.