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Chapter 13,
The Estate Tax
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THE ESTATE TAX
?The estate tax formula
?Gross estate valuation
?Gross estate items
?Deductions
?Computation of tax liability
?Generation-skipping transfer tax
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The Estate Tax Formula
(1 of 3)
Gross Estate
- Deductions (exp,debts,& losses)
= Adjusted Gross Estate
- Marital & charitable deductions
= Taxable estate
+ Prior Taxable Gifts
= Estate tax base
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The Estate Tax Formula
(2 of 3)
?Taxable estate is gross estate
minus deductions
?All taxable gifts made after 1976,
other than gifts included in gross
estate,are added to taxable estate
?Gifts valued at date-of-gift values
?Sum of two amounts is tax base
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The Estate Tax Formula
(3 of 3)
?Compute tentative tax on estate tax
base
Tentative tax
- Recomputed gift tax
- Available unified credit
- Other credits
= Estate tax due
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Gross Estate Valuation
?Gross estate valued at FMV at either
–Date of death or alternate OR
–Alternate valuation date
?6 mo,after death unless dispositions occur
–Both gross estate & tax liability must be
reduced for alternate date to be effective
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Gross Estate Items
(1 of 2)
?Property in which decedent had an
interest
?Property transferred to others but
which decedent still controlled or
obtained benefits
?Gift taxes paid on gifts w/in three
years of date of death
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Gross Estate Items
(2 of 2)
?Life insurance
?Exclusion of certain family owned
businesses
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Deductions
(1 of 2)
?§ 2053 authorizes deductions for
–Mortgages
–Other debt owed by decedent
–Funeral expenses
–Administration expenses
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Deductions
(2 of 2)
?Deductions permitted by other code
sections
–Casualty and theft losses
–Charitable contributions
–Marital deduction
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Computation of
Tax Liability (1 of 3)
?Progressive tax rates
–Applied to estate tax base to determine
tentative tax
–Rate varies from 18% to 55% with
additional 5% surtax on tax bases
between $10,000,000 & $21,040,000
?Effect of surtax is to levy a flat tax of 55%
on very large estates
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Computation of
Tax Liability (2 of 3)
?Gift tax reduction
–If taxable gifts have been added to
base,recompute gift tax using rates in
effect at date of death
–Subtract unified credit ACTUALLY
taken in gift year
–Reduce tentative estate tax by net gift
tax
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Computation of
Tax Liability (3 of 3)
?Credits
–Unified credit not previously used
?Maximum credit of $220,550 for 2001 shelters
estate/gift tax of up to $675,000
–Other credits include
?State death tax credit (Appendix G)
?Gift tax credit on pre-1977 gifts
?Credit for estate taxes paid on prior transfers
?Credit for foreign death taxes
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Generation-Skipping
Transfer Tax (GSTT) (1of 3)
?Purpose of GST
–Ensure some form of transfer tax
imposed at least once per generation
?GST tax levied at a flat 55%
–Highest gift or estate tax rate
?Tax applies to taxable terminations
of and taxable distributions from
generation-skipping transfers
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Generation-Skipping
Transfer Tax (GSTT) (2 of 3)
?Generation-skipping transfer
dispositions
–Provide interests for > one generation
of beneficiaries in a younger
generation than the transferor OR
–Provide an interest solely for a person
two or more generations younger
than the transferor
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Generation-Skipping
Transfer Tax (GSTT) (3 of 3)
?Termination of an interest in a G-S
arrangement is a taxable termination
–Termination triggers imposition of GSTT
–GSST levied on pre-tax amount
transferred
–Trustee pays tax
?Grantor gets $1,060,000 exemption in
2001 (indexed for inflation)
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