Estate and gift taxes deal with the transfer of property. The estate tax is levied on the estate, meaning the property left by a person who dies, and must be paid by the executor of the estate before any of the heirs or beneficiaries of the person’s will can collect whatever property remains. Both federal and state taxes apply, with great differences among the states in how estates are taxed.
Gift taxes are designed to prevent people from circumventing the estate taxes by giving overly large transfers of money or property to their children or other family members while they are still alive.
Because of significant exemptions, estate and gift taxes commonly only affect high-income individuals. Nevertheless, because of inflation, particularly in the value of real property and businesses, an unpleasant estate tax surprise may occur on a person’s death, so some quality estate tax planning is always a good idea.
Once money or other property has passed through the estate tax process, anything that remains is usually not subject to federal or state income tax. To circumvent this, some states (but not the federal government) apply inheritance taxes that must be paid by the recipient of the inherited or willed property.
Next Section:Everyday Life in the USA
Personal Finance: Chapter Home
Life in the USA Home Page.