Common Estate and Inheritance Tax Terms

These are simple, starter definitions for estate and inheritance taxes. Check with your financial advisor before doing anything.


Estate Tax

The Estate Tax is a transfer tax, which taxes the amount of wealth transferred by a decedent at the time of his or her death. The IRS states that ‘”The laws on Estate and Gift Taxes are considered to be some of the most complicated in the Internal Revenue Code. For further guidance, we strongly recommend that you visit with an estate tax practitioner (attorney or CPA) who has considerable experience in this field.”

  1. Basic facts:
    • The “death tax” or estate tax is due nine (9) months after the date of death, and is payable in cash.
    • According to the IRS, a six month extension is available if requested prior to the due date and the estimated correct amount of tax is paid before the due date.
    • Estate tax rates, which range from 37% to 55%, are substantially higher than other tax rates - the lowest estate tax rate is almost as high as the highest income tax rate (39.6%).

Find out about estate taxes on the IRS Web site (Internal Revenue Service).

Inheritance Tax

Inheritance taxes are the oldest and most common form of death tax. They are typically levied at graduated rates based upon the amount of the bequest and upon the relationship between the deceased and the beneficiary.

According to the National Conference of State Legislatures, five types of exemptions are usually allowed under the inheritance tax:

  1. Personal exemptions based on the relationship of the giver and receiver
  2. Exemptions of a specified amount allowed the entire estate
  3. Exemptions for property on which a tax already has been paid
  4. Exemptions for bequests to charitable, religious or educational institutions
  5. Exemptions for particular types of property.

Find out about inheritance taxes by state on the IRS Web site (Internal Revenue Service).

For all questions regarding taxes and financial matters regarding a death, contact your attorney or financial advisor.

Updated: 5/2009