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Essay Example on the Transfer-tax System

3 pages
633 words
Carnegie Mellon University
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A transfer-tax system is a form of federal tax levied on the property being transferred to the heirs at the death of the deceased. The transfer estate tax is based on the amount that the beneficiaries are going to receive. Usually, transfer tax system progressive. It increases as the value of the property being transferred to the beneficiarys increases. The current U.S federal estate tax includes several transfer tax systems which include property transfer tax upon the death of the deceased, gift tax which is levied when the person is still alive, and generation-skipping transfer tax (Joint Committee on Taxation, 2007). Therefore, Mr. and Mrs. Ybarra should know that their overall 4 million dollars of estate property are subject to a transfer estate tax system. The current rate of transfer tax rate system is 40% which implies that Mr. and Mrs. Ybarra will be taxed 40% of $4million as a tax upon their death. The remaining 60% will be transferred to their Heirs after they two passed away.

What is considered part of the estate?

All property that that is left behind by the deceased are considered part of the estates; it includes assets such as stocks, houses, cars to mention just but a few. Other amounts that are considered part of the estates include trust retirements accounts, the deceased life insurances, taxable tax benefits from annuities and pension as well as interest from a business owned by the deceased during their lifetime. In this case, it can be observed that the gross market value of all the assets that Mr. and Mrs. Ybarra owned during their lifetime estate will be considered part of the estate. Some of the amount that the couple owned includes their jointly held accounts, and pension and their overall $4 million worth will be considered part of their estate. Also, the property that they did not use during their lifetime such as proceeds of their insurance that they insured against their life will be considered part of their estate property and will be taken over by their beneficiaries.

How much is excluded from taxation based on current legislation

The amount excluded from taxation based on the current legislation is any amount below $5.43 million as at 2015. Any amount of estate property exceeding five million, four hundred and forty-three thousand is subject to taxation (Joint Committee on Taxation, 2007). Some of the items that are excluded from taxation based on the current legislation include donations from charity, debts owned by the deceased such as bank loans and administrative cost for managing the estate are excluded from taxation.

Gross estate versus adjusted gross estate

Gross estate involves the total assets market value that was owned by the person at the time they passed away. It includes all the assets that the deceased held before any adjustment on taxation and debt allowances are made. The gross estate forms an essential basis for determining the amount to be levied as the estate tax. Some of the gross estate includes real estate, lifetime insurance, cash property, shares among other assets. On the contrary, the adjusted gross estate is the total amount to be received by the decedent after certain deductions have been made. Among the deductions made to arrive at adjusted gross estate include claims by creditors claim, funeral expenses, administration cost, and losses on casualties (De Nardi, & Yang, 2016). The adjusted gross estate value is utilized in computing estate tax.



Caron, P. L. (2016). The One-Hundredth Anniversary of the Federal Estate Tax: It's Time to Renew Our Vows. BCL Rev., 57, 823.

De Nardi, M., & Yang, F. (2016). Wealth inequality, family background, and estate taxation. Journal of Monetary Economics, 77, 130-145.

Joint Committee on Taxation. (2007). History, present law, and analysis of the federal wealth transfer tax system. Retrieved May 19, 2009, from:<file:///C:/Users/Recovery/ Downloads/JCX-52-15%20(1).puff>


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