Business Glossary

federal government tax imposed on the estate of a decedent according to the value of that estate. The first step in the computation of the federal estate tax owed is to determine the value of the decedent's gross estate . The determination can be made by adding the values of the following assets owned by the decedent at the time of death:

1. property owned outright.
2. gratuitous lifetime transfers but with the stipulation that the decedent retained the income or control over the income.
3. gratuitous lifetime transfers subject to the recipient's surviving the decedent.
4. gratuitous lifetime transfers subject to the decedent's retaining the right to revoke, amend, or alter the gift.
5. annuities purchased by the decedent that are payable for the lifetime of the named survivor as well as the annuitant .
6. property jointly held in such a manner that another party receives the decedent's interest in that property at the decedent's death because of that party's survivorship.
7. life insurance in which the decedent retained incidents of ownership.
8. life insurance that was payable to the decedent's estate.

The second step in the computation of the federal estate tax owed is to subtract allowable deductions (including bequests to charities, bequests to the surviving spouse, funeral expenses, and other administrative expenses) from the gross estate. This results in the taxable estate . Adjustable taxable gifts are then added to the taxable estate, resulting in the computational tax base. The appropriate tax rate is then applied to the computational tax base, resulting in the tentative federal estate tax (certain credits may still be subtracted).

federal tax imposed on the estate of a decedent according to the value of that estate. The first step in the computation of the federal estate tax owed is to determine the value of the decedent's gross estate. This determination can be made by adding the following values of assets owned by the decedent at the time of death:

1. property owned outright.
2. gratuitous lifetime transfers, but with the stipulation that the decedent retained the income or control over the income.
3. gratuitous lifetime transfers subject to the recipient's surviving the decedent.
4. gratuitous lifetime transfers subject to the decedent's retaining the right to revoke, amend, or alter the gift.
5. annuities purchased by the decedent that are payable for the lifetime of the named survivor as well as the annuitant.
6. property jointly held in such a manner that another party receives the decedent's interest in that property at the decedent's death because of that party's survivorship.
7. life insurance in which the decedent retained incidents of ownership.
8. life insurance that was payable to the decedent's estate.

The second step in the computation of the federal estate tax owed is to subtract allowable deductions (including bequests to charities, bequests to the surviving spouse, funeral expenses, and other administration expenses) from the gross estate. This results in the taxable estate. Adjustable taxable gifts are then added to the taxable estate, resulting in the computational tax base. From the table below, the appropriate tax rate is then applied to the computational tax base, resulting in the tentative (certain credits may still be subtracted) federal estate tax.

If Computational

Note that the above tax schedule is applicable to the taxable estate only after the adjustment for settlement costs, administrative expenses, and the unified estate and gift tax credit.

It is important to note that there is an unlimited marital deduction (the estate of the decedent passes to the spouse free of federal estate taxes) and that all federal estate taxes are eliminated on estates having a computational tax base of $650,000 or less in 1999. The unified credit will be increased from the current $650,000 to $1,000,000 in the year 2006 accoding to the following schedule:

To conform with the unlimited marital deduction in estates, tax-free gifts between spouses are allowed in unlimited amounts.