Estate Tax v. Inheritance Tax
1. An estate tax is levied on the estate and is a tax on the transfer of property. An inheritance tax is levied
the heir and is a tax on the receipt of property.
Estate Tax Base
2. The estate tax base equals the sum of the taxable estate and adjusted taxable gifts made after 1976.
Applicable Credit Amount
3. The applicable credit amount is $1,455,800 and corresponds to an exemption from the estate tax of
million. During the individual’s lifetime its only purpose is to determine if any gift tax is currently
Once adjusted taxable gifts on a cumulative lifetime basis exceed $1,000,000, a gift tax is due since, at
point, the applicable credit amount would be exhausted for gift tax purposes.
Gross Estate v. Probate Estate
4. Many items not subject to probate may be includible in the gross estate, such as life insurance payable
named benefi ciary and jointly held property.
Gross Estate: Estate Tax Liability Computation
Gross estate $3,580,000
Less: Administration expenses 60,000
Taxable estate $3,520,000
Plus: Adjusted taxable gifts 20,000
Estate tax base $3,540,000
Tentative tax (Code Sec. 2001):
Tax on $3,500,000 $1,455,800
Plus: 45% of $40,000 18,000
Less: Applicable credit amount 1,455,800
Estate tax payable $ 18,000
Qualifi ed Terminable Interest Property Trusts
15. A QTIP trust qualifi es for the marital deduction by election even though the surviving spouse may
an income interest for life. The disadvantage is that the full value of the trust is includible in the estate of
Charitable Deduction: Income v. Estate Tax
16. The estate tax value of all charitable gifts included in the gross estate is deductible in full without
percentage limitations as is the case for the income tax deduction.
Unitrust v. Annuity Trust
: Payout must be a fi xed percentage (at least 5 percent) of the annual value. The remainder is
using this rate as the discount rate.