In the United States, the transfer of property (including money) pursuant to a will, under the laws of intestacy, or otherwise as a result of death, will subject the recipient to potential liability for estate or inheritance taxes.
Federal law imposes a tax (known as an estate tax) on “the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.” To determine the amount of the taxable estate, federal law first seeks to determine what is known as the “gross estate.” The gross estate includes the total value of all the property interests of the deceased at the time of death, as well as certain property interests not owned at death, such as:
Once the gross estate has been established, the estate may deduct certain expenses or items of property, including:
A tentative tax will then be determined, using a federal formula.
Once the tentative tax has been set, the estate may claim a unified tax credit to offset some or all of the amount due. In 2010, Congress enacted a new law, unifying the federal estate tax credit and the federal gift tax credit. For 2014, the total amount of the credit (per decedent) is $5,340,000.The 2010 law also allows a surviving spouse to use any portion of the credit that the other spouse did not use.
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