Federal Estate Tax

Definition of "Federal estate tax"

Mike Williams

Keller Williams

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:

property owned outright.
gratuitous lifetime transfers, but with the stipulation that the decedent retained the income or control over the income.
gratuitous lifetime transfers subject to the recipient's surviving the decedent.
gratuitous lifetime transfers subject to the decedent's retaining the right to revoke, amend, or alter the gift.
annuities purchased by the decedent that are payable for the life time of the named survivor as well as the annuitant.
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 survivor ship.
life insurance in which the decedent retained incidents of ownership.
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.