What is the Estate Tax?

Welcome to one of several introductory articles associated with the launch of our new blog, Arkansas Estate, Business, and Property Law, a blog addressing the protection of assets under Arkansas Law.  Today we will discuss an issue central to many of the articles featured on our blog:  “What is the Estate Tax,” and what do you need to know to ensure proper protection of your assets.

The Estate Tax, commonly referred to as “the Death Tax” in the media, is also known as the “inheritance tax.”  This tax is assessed on the estate of a deceased person.  In other words, when a person dies, and his or her property and assets are passed to heirs and descendants, the estate tax comes into play.  It does not matter if the person dies with a will (or trust), or whether they die intestate (without a will), the estate tax must nevertheless be taken into consideration (you know what they say about death and taxes).

For purposes of federal taxation, the estate tax is imposed upon the amount of “taxable estate” passed to the heirs or descendants of the person who has died.  When calculating the “taxable estate,” the law first takes into account the total “gross estate” of the decedent, which generally includes all property of the person at the time of death, including proceeds from life insurance. 

The key in estate planning is to limit the amount of your “gross estate” which will be included within your “taxable estate.”  By creating trusts and taking advantage of additional planning techniques, you are able to limit the amount of your estate which would be taxable, i.e. subject to the estate tax.  Various articles on this blog will discuss tools which may be used to reduce your taxable estate, including:

• Revocable Trusts
• Gifts
• Business Ownership
• Life Insurance Trusts
• Bypass and Marital Trusts
• Charitable Gifts

For additional information on this subject, please see “When does the Estate Tax apply?”