The transfer of property from one person to another is subject to both gift tax and estate tax. The transfer of property from a deceased person to their heirs or beneficiaries is subject to estate tax, which is a type of tax. The transfer of property from a living person to another without getting anything in return is subject to gift tax. The fair market value of the asset at the time of transfer, not its original cost or purchase price, is used to determine the estate tax as well as the gift tax.
The main goals of estate and gift taxes are to raise money for the government and avoid the concentration of wealth and power in the hands of a small number of people or families. Due to the fact that gifts to recognized charities are free from estate and gift taxes, these taxes also stimulate charitable giving.
At both the federal and state levels, there are numerous laws that control estate and gift taxes. The estate and gift taxes are combined at the federal level, which means they have the same exemption limits and tax rates. Only transfers above the federal estate and gift tax exemption limit ($12.92 million per person for 2023) are subject to the estate and gift tax.
The transfer of property from a deceased person to their heirs or beneficiaries is subject to an estate tax. The fair market value of the asset at the time of death, not its initial cost or purchase price, is used to determine the estate tax. Only estates that surpass a particular threshold, known as the exemption or exclusion, are subject to the inheritance tax. Each year, the exemption amount is adjusted for inflation and new laws. Only estates with a value greater than the federal estate tax exemption ($12.92 million per person for 2023) are subject to the estate tax. Depending on the amount of the taxable estate, the federal estate tax rate can be anywhere between 18% and 40%.
The inheritance tax, which is a fee paid by the beneficiaries of an inheritance rather than the estate itself, is distinct from the estate tax. The inheritance tax is determined by the heir’s relationship to the decedent as well as the size of the estate they were given. Only a few states—Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania—have an inheritance tax. Rates and exemptions for inheritance taxes differ by state and kind of heir. For instance, in Pennsylvania, brothers and other heirs are subject to a 15% inheritance tax rate while spouses and children are free.
