The Gross estate tax is a tax imposed on the total value of an estate on the day that the benefactor passes away. The estate tax is generally imposed on the total value of an estate, regardless of what beneficiary inherits the property. Gross estate taxes are imposed on the estate, before an individual inherits all of, or a portion of an estate.
Once the estate has been inherited, the beneficiaries may also be responsible for individual inheritance taxes based on the value of their specific inheritance. Although, most states no longer impose an inheritance tax. The Federal government does impose an estate tax on the total value of an estate before it is divided between the beneficiaries.
There are modifications available to reduce a gross estate tax burden. Those modifications can include a reduction for the value of an estate held by another party, such as a surviving spouse. In addition, the value of a portion of the estate that was disbursed prior to death, may also be used to reduce a gross estate tax. Those that take possession of any portion of the estate, prior to the death of the benefactor through a life estate, are responsible for a tax burden that is separate from that of the estate tax.
There are also special laws that govern portions of an estate in which a surviving spouse is entitled to through rights of survivorship. Rights of survivorship differ in each state and can be dependant on the marriage laws in that state. For Federal tax purposes, rights of survivorship only apply to opposite sexed married couples due to the Defense of Marriage Act. Even same sex couples that are legally married in their state of residence, will find estates taxes at the gross estate tax rate because under federal law, their marriage is not legal.
There are other exceptions that may allow those estates to escape the gross estate tax such as a spouse owning a portion of, or having a legal interest in part of the estate. Regardless of whether the Federal government recognizes that marriage, the legal rights of ownership will still apply.
There are many ways that a gross estate tax can be legally manipulated. Estate planning should always include a review of tax laws that would apply to the gross estate value. Estates that will not incur an inheritance tax in some states, will still be subject to the Federal estate tax. The total value of inherited property will be reduced once the gross estate tax has been paid.