Estate Tax
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Inheritance tax, also known in some countries outside the United States as a death duty and referred to as an estate tax within the U.S, is a form of tax levied upon the bequest that a person may make in their will to a living person or organisation. If a bequest is made to a charitable organisation, most countries do not apply the tax. The tax is also imposed on other transfers of property made as an incident of the death of the owner, such as a transfer of property from an intestate estate, or the payment of certain life insurance benefits.
The U.S. federal government imposes an estate tax, calculated as a percentage of the part of the estate that exceeds the current exempted value. For 2005, an estate with a value less than $1,500,000 would not pay an estate tax and most likely would not have to file an estate tax return. Many U.S. states also impose their own estate or inheritance taxes (See state estate tax).
For estates larger than the current exempted amount, any estate tax due is paid by the executor or other person responsible for administering the estate. That person is also responsible for filing a return with the Internal Revenue Service. The return must contain detailed information as to the valuations of the estate assets and the exemptions claimed, to ensure that the correct amount of tax is paid.
Life insurance benefits generally form part of the gross estate for tax purposes, if the benefits are payable to the estate, or if the decedent was the owner of the life insurance policy or had any "incidents of ownership" over the life insurance policy. Similarly, bank accounts or other financial instruments which are "payable on death" or "transfer on death" are usually included in the taxable estate, even though such assets are not subject to the probate process.
The taxable portion of an estate can be reduced through charitable contributions or provisions that allow executors of some qualifying family-owned farms to reduce the taxable value of an estate's real property by some percentage of market value (up to certain limits) if certain eligible heirs continue to actively farm the property for over a decade.
Many of its opponents refer to the estate tax as the "death tax" and have called for its abolition. Since 2002, the top rate has dropped from 50% by one percent per year; it is scheduled to drop to 45% in 2009, thence to 0% in 2010, but as of 2005, if no further changes in the law are enacted, the tax will be reimposed at a top rate of 50% in 2011. It is, however, expected that Congress will enact legislation to change this in the intervening period.