Estate & Gift Taxation
Overview and Taxable Estate
Estates subject to tax.
Estate tax applies to:
estate of any person who dies leaving property having a
taxable situs within the U.S.
Gross estate = FMV of all ownership interests by
the decedent - includes real, personal, tangible,
intangible property, wherever situated
Deductions allowed in computing Taxable estate:
Funeral and administrative expenses (incl. executor fees)
Liabilities of the decedent
Bequest to spouse
Charitable bequests (qualified charitable organizations)
Taxable Estate
Similar to balance sheet: subtract liabilities from
assets, leaving decedent’s net wealth (equity)
FMV of Assets – NPV of liabilities = taxable estate
Plus: lifetime taxable gifts = Estate tax base
Less: transfer tax exclusion* ($5,430,000 for 2015)
Times 40% (flat rate on amount above exclusion)
Tax Due
Less than 1% of population will pay wealth transfer
tax.
* Technically, the entire taxable estate is multiplied by the tax rate schedule, and the estate is
allowed a “unified credit” which offsets the tax liability on the first $5,430,000 of the value of
the estate.
Income Tax Basis of Inherited Property
FMV at date of death.
Special rules apply to gifts being returned to the
original donor within one year of the original gift basis in hands of decedent immediately before
dying.
No step up in basis for retirement accounts.
Basis in property received by gift is donor’s
carryover basis (not FMV of property at date of gift).