Estate Tax

What Is Estate Tax?

An estate tax is levied on an estate whose worth exceeds a statutory exclusion limit or a limit set by law.

Deeper Definition

Depending on where they lived and how much they were worth, a person’s possession may be liable to estate taxes only when they pass away (die). Emphasis is, however, laid on the fact that only the estates whose worth exceeds an exclusion limit set by the law are subjected to tax.

It has been discovered that some people interchange estate tax for inheritance tax which is significantly different. An inheritance tax is that which is paid by the beneficiary, or a person who inherited an estate (money or property) of a deceased and the tax is directly imposed on them (the beneficiary), the estate tax is directly imposed on the estate of the dead and indirectly on the beneficiary. This implies that the person paying the estate tax may also be responsible for the inheritance tax. In most nations, death is a taxable event with legal and social justifications for such levies. The tax can be viewed as a price or privilege for transferring properties to heirs and beneficiaries after one’s death. In terms of social justice, the tax diminishes wealth inequities and allows enormous estates to be broken up.

Gifts, generation-skipping trusts, and the formation of restricted interests in the estate have all been utilized to minimize or decrease estate taxes. The tax, also referred to as “death tax,” has been criticized for forcing the sale of small family-owned farms and businesses because the tax is based on the estate’s worth, yet there may not be enough cash available to pay it.

Estate Tax Example

To avoid a massive estate tax payment, the father has decided to sell off a larger part of his landed properties and give out some of the cash estates to the orphanage homes to give back to the society/charity. This he planned on doing in the early years of his old age before he died. He has always urged his children to work very hard to acquire their estates as this is the only way they value them.