Lesson 3: Key Terminologies in Estate Tax Law

Welcome to our third lesson on Federal Estate Tax Law. In this lesson, we'll cover some key terminologies essential for understanding estate tax law.

Gross Estate

The Gross Estate includes the value of all property owned by the decedent at the time of death. This includes real estate, stocks, bonds, and other personal property.

Note: For a detailed explanation on what constitutes an estate, refer to Lesson 4: What Constitutes an Estate.

Adjusted Gross Estate

This is the Gross Estate value after deducting funeral expenses, debts, and other eligible deductions. It forms the basis for calculating the taxable estate.

Best Practice: Make sure to thoroughly document all expenses and debts that may qualify for deductions. 

        

            
Gross Estate: $1,000,000

            
Deductions: $200,000

            
Adjusted Gross Estate: $800,000

Taxable Estate

The Taxable Estate is the Adjusted Gross Estate minus any applicable deductions such as the marital deduction and charitable deductions.

For more details: Refer to Lesson 8: Marital Deduction and Lesson 9: Charitable Deductions.

Exclusion Amount

The Basic Exclusion Amount is the threshold below which no federal estate tax is owed. This amount is adjusted periodically for inflation.

Mathematically, the taxable estate can be represented as:

\[ \text{Taxable Estate} = \text{Adjusted Gross Estate} - \text{Deductions} \]

Unified Credit

The Unified Credit is a tax credit that can be applied to both estate and gift taxes. It effectively reduces the amount of tax owed.

Marital Deduction

The Marital Deduction allows for the transfer of assets to a surviving spouse without incurring federal estate tax, provided the surviving spouse is a U.S. citizen.


        

            
Adjusted Gross Estate: $800,000

            
Marital Deduction: $500,000

            
Taxable Estate: $300,000

Diagram: Estate Tax Calculation Process

graph TD A["Gross Estate"] -->|Minus| B["Deductions (Debts, Funeral Expenses)"] B -->|Equals| C["Adjusted Gross Estate"] C -->|Minus| D["Applicable Deductions (Marital, Charitable)"] D -->|Equals| E["Taxable Estate"] E -->|Minus| F["Unified Credit"] F -->|Equals| G["Estate Tax Due"]

Conclusion

Understanding these key terminologies will provide a solid foundation for navigating the complexities of federal estate tax law. Continue learning by exploring the next lessons on What Constitutes an Estate and Calculating the Gross Estate.

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