Estate tax in the United States

Other transfers that are subject to the tax can include those made through a trust and the payment of certain life insurance benefits or financial accounts.

[13] One of the major concerns that motivate estate planning is the potential burden of federal taxes, which apply both to gifts during lifetime and to transfers at death.

If the personal representative of the decedent's estate elects transfer, or portability, of the DSUE amount, the surviving spouse may apply the DSUE amount received from the estate of his or her last deceased spouse against any tax liability arising from subsequent lifetime gifts and transfers at death.

The return must contain detailed information as to the valuations of the estate assets and the exemptions claimed, to ensure that the correct amount of tax is paid.

[43] On January 1, 2013, the American Taxpayer Relief Act of 2012 was passed permanently establishing an exemption of $5 million (in 2011 dollars adjusted for inflation) per person for U.S. citizens and residents, and a maximum tax rate of 40% for the year 2013 and beyond.

[47] For U.S. estate tax purposes, a U.S. resident is someone domiciled in one of the United States or the District of Columbia at the time of death.

Non-resident aliens and foreigners have a $60,000 exclusion instead, although this amount may be higher if a gift and estate tax treaty applies.

"[52] For decedents dying in calendar year 2014, 12 states (Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington) and the District of Columbia impose only estate taxes.

[13] A 2021 investigation using leaked IRS documents found more than half of the richest 100 Americans are using grantor-retained annuity trusts to avoid paying estate taxes when they die.

To put this in perspective, a reduction in annual charitable donations in life and at death of $10 billion due to estate tax repeal implies that, each year, the nonprofit sector would lose resources equivalent to the total grants currently made by the largest 110 foundations in the United States.

Although estate tax reform will raise many issues, the impact on the nonprofit sector should be a central part of the debate.

Proponents of the estate tax argue that large inheritances (currently those over $12 million) are a progressive and fair source of government funding.

[61][62] William Gale and Joel Slemrod give three reasons for taxing at the point of inheritance in their book Rethinking Estate and Gift Taxation.

[63] Proponents note that abolishing the estate tax will result in tens of billions of dollars being lost annually from the federal budget.

The strength of political opposition to the estate tax, proponents argue, would not be found under a veil of ignorance, in which policy makers were kept from knowing the wealth of their own families.

[67] A 2004 report by the Congressional Budget Office found that eliminating the estate tax would reduce charitable giving by 6–12 percent.

Chye-Ching Huang and Nathaniel Frentz of the Center on Budget and Policy Priorities assert that large estates "consist to a significant degree of 'unrealized' capital gains that have never been taxed...."[69] Supporters of the estate tax argue there is longstanding historical precedent for limiting inheritance, and note current generational transfers of wealth are greater than they have been historically.

In ancient times, funeral rites for lords and chieftains involved significant wealth expenditure on sacrifices to religious deities, feasting, and ceremonies.

[70] Free market supporters of the tax, including Adam Smith[71] and the founding fathers[72] would argue that people should be able to get to the top of the market through earning wealth, based on meritocratic competition, not through unearned, inherited handouts, which were central to the aristocratic systems they were opposed to, and fought the War of Independence to free American citizens from.

[73] These factors create a system perceived to be rigged against those who are not lucky enough to be born into wealthy families, along with political instability; continuous infighting and even civil wars.

The tax affects a small number of people who inherit large amounts of wealth—and who can afford to give up a portion of their windfall to help finance their government.

Oscar Mayer heir Chuck Collins writes "Billionaires are expanding their shares of the pie at the expense of investments in our social safety net, infrastructure, and education systems," and notes that "Supreme Court Justice Louis Brandeis observed, 'You can have concentrated wealth in the hands of a few or democracy.

In an article in Washington Examiner, Michael Shindler argued that "inheritance of multigenerational wealth allows people, especially young people, to comfortably pursue callings that, despite their vital importance to human flourishing, are typically uncompensated by the market" and cites Lord Byron, Thomas Jefferson, and Ludwig Wittgenstein as examples of such individuals.

Similarly, Shindler also argues that "whereas in Europe museums, theaters, symphony halls, and other cultural institutions are typically government-subsidized, here they gain the bulk of their funding from the generosity of philanthropic foundations founded and sustained by the stewards of multigenerational wealth....Consequently, American culture is less an expression of the whims of bureaucrats and more a manifestation of the will of its citizenry.

For example, pending estate taxes could be a disincentive to invest in a viable business or an incentive to liquidate, downsize, divest from or retire one.

Older people may see less value in maintaining a farm or small business than reducing risk and preserving their capital, by shifting resources, liquidating assets, and using tax avoidance techniques such as insurance, gift transfer, trusts and tax-free investments.

The estate tax may force surviving family members to sell land, buildings, or equipment to continue their operation.

[81] A disparity between tax rates may encourage wealthy people to minimize taxation by moving their wealth outside the United States.

An estate tax is levied on the deceased's assets before they are distributed by the federal government and twelve states; Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.

[95] Six U.S. states levy an inheritance tax on the beneficiary of the estate; Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.