Estate Tax Terms You Need to Know

With the tax season just around the corner and estate taxes taking front and center stage in the news lately, we define several estate tax terms.

Capital Gains: A capital gain, or a loss for that matter, can be realized if you sell inherited property. A capital gain is the profit from the sale of property such as stocks, property and real estate. For estate tax purposes, the basis of the property is normally its value on the decedent’s date of death and it is subtracted from the selling price, along with associated expenses, to determine the capital gain.

Cost Basis: The cost basis of property is the original price of an asset, such as stocks, bonds, mutual funds, real estate, property or equipment; it is also defined as the amount of your investment in a property for tax purposes; normally the basis of property acquired from an inheritance is its fair market value at the date of death.

Federal estate tax: A tax on your right to transfer property at your death.

Generation-Skipping Transfer Tax: The generation skipping transfer tax is a tax on property that is passed from a grandparent to a grandchild (or great-grandchild) in a will or trust. The tax is also assessed on property passed to unrelated individuals more than 37.5 years younger. The purpose of this tax is to recoup the taxes lost when the transfer ‘skips’ a generation.

Gross Estate: A gross estate is everything a deceased owned or had financial interests in at the date of death.

Net Estate: The net estate is the part of an estate which remains after the allowable deductions for administering the estate and allowable exemptions have been made.

Special Use Valuation: Property must be valued at its fair market value for purposes of the estate tax; however, an exception to this general rule applies to certain real property of closely held family farms and other family-owned businesses. If all the requirements are met, the property will be valued in accordance with its actual, current use. This is an important estate planning tool for farming families and small businesses.

Unlimited Marital Deduction: This deduction allows a spouse to pass their entire estate, regardless of size, to the other, with no federal estate taxes.

Author Bio

Catherine Hammond is the CEO and founder of Hammond Law Group, a Colorado-based estate planning law firm she founded in 2005. With a strong focus on protecting families from the legal consequences of disability and death, she creates comprehensive estate plans that minimize taxes, costs, and government interference.

A native of Denver, Catherine completed her undergraduate studies at Coe College in Iowa, and her Juris Doctorate from the University of Denver College of Law in 1993, concentrating on estate planning, tax, and mediation. Catherine is a member of various professional organizations, including WealthCounsel, ElderCounsel, the National Academy of Elder Law Attorneys, the Colorado Springs Estate Planning Council, and the Purposeful Planning Institute. Beyond her legal expertise, Catherine provides transformational coaching to support clients and their families through life transitions.

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