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What are Estate Taxes?

Estate taxes can be collected on inherited property of high value.
Charitable bequests are exempt from estate taxes in some jurisdictions.
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  • Written By: Damir Wallener
  • Edited By: Niki Foster
  • Last Modified Date: 29 August 2014
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Estate taxes, also known as inheritance or death taxes, are taxes imposed on the estate of a deceased individual. They are one of the oldest forms of individual taxation in the western world, with records indicating use as far back as the days of Aristotle. In the modern era, both Britain and the US began imposing estate taxes as early as the mid-18th century.

Historically, estate taxes have been a contentious political issue. In the United States, they were initially imposed to help fund the war for independence —- and then quickly repealed. They were subsequently reinstated and repealed on no less than three separate occasions. They were last introduced by the Roosevelt administration during the Great Depression, and in 2001 the US Congress initiated a repeal process that will take until 2010 to complete. At that time, estate taxes will be automatically reinstated the following year unless Congress passes legislation making the repeal permanent.

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The use of estate taxes varies greatly from country to country. At their peak during the Great Depression, estate taxes in the United States were as high as 70%. As of 2005, estates worth less than $1.5 million are exempt from federal estate taxes. Canada eliminated estate taxes in the 1980s and began treating disbursements as ordinary income. Even in the European Union, which is working tax policy harmonization, great differences remain. Sweden, for instance, has no estate taxes at all, while the UK has a 40% rate on all estates over a nominal value.

Jurisdictions that impose estate taxes generally allow exemptions for charitable bequests and spousal inheritance. Families can also establish trusts as a way of minimizing the impact of estate taxes. To prevent individuals from avoiding estate taxes by simply giving away property during their lifetimes, gift taxes are often imposed.

Controversies over estate taxes generally center on their use as a tool of social policy. Unlike more direct forms of taxation, estate taxes can impact multiple generations of a family. By making it harder for an extended family to accumulate long-term wealth, certain political theorists maintain that estate taxes are the optimal form of taxation for preserving a broad middle class, which in turn is necessary for a strong, participatory democracy. Others contend that family fortunes rise and fall on their own anyway, and that estate taxes are simply a malignant form of wealth redistribution. In societies where estate taxes are particularly high, critics often point to small family businesses as being especially hard hit. To pay estate taxes, surviving family members may be forced to sell their businesses or farms to larger corporations.

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anon48293
Post 4

my father passed away last june. he did not have a will and the house went into probate. now we want to sell it, my brothers and i. will we have to pay the full amount of taxes if the house doesn't get sold? my father was getting low taxes because he was a veteran and was getting the starr program. his taxes were only $3,000. if they go up they will be $10,0000. do we have to pay that amount? --sgarcia777

anon16829
Post 3

Thanks for the advice. I'll check out the IRA 590 pub.

ivanka
Post 2

Annag - The estate usually has to pay taxes, and then you'd have to pay income taxes on the money received, but how much, and what are the rules? It depends on a lot of variables. Check IRA publication 590. And if you can not find the answer, then you should contact a tax adviser.

annag
Post 1

My mother passed away 10 months ago. I have lived in France for the last 18 years. She had an IRA worth 45K that had my name and my half brother's name on it. I will be receiving around 19K. What sort of tax rate can I expect to pay on this money?

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