All About the Death Tax

By: Staff

4 Min Quiz

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About This Quiz

What is the death tax? Does it even exist? Will the federal government use it to wipe out your savings? Take this quiz to find out how much you know about this often-misunderstood part of the tax code.

Does a death tax actually exist?

While the federal government doesn't impose a tax on citizens simply for dying, the term "death tax" is commonly -- but incorrectly -- used to refer to estate or inheritance taxes.

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When were estate taxes first used in the U.S.?

Estate taxes were first used in the U.S. in the late 1700s to help finance wars. The estate tax became a formal, non-war-related tax when the federal government passed the Revenue Act of 1916.

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What's the difference between estate taxes and so-called gift taxes?

Both estate transfers after death and during the granter's lifetime are occasionally referred to as "death taxes." But the two categories have their own requirements and nuances.

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How do you know if your estate is large enough to qualify for estate taxes when you die?

The federal government sets an exemption limit for estate taxes (as of 2011, it's $5 million per taxpayer). A tax professional can help you appraise the value of your estate so you can determine whether your heirs will face this tax.

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Will the death tax wipe out your estate if you die in 2011?

While poor advance planning could put your estate at risk regardless of the tax rate, federal estate tax rates in 2011 max out at 35 percent. Careful planning can ensure that this doesn't wipe out your estate.

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Does the death tax apply equally in every state?

Estate taxes are just like income taxes, in that both the federal and state governments levy them. Many states have estate taxes that are similar to the federal government's, but the specific laws vary from state to state.

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Can you do anything to manage the estate taxes your heirs will pay when you die?

While you obviously will not be able to help your heirs file estate taxes after your death, you can help make the process easier on them. Work with a financial planner to set a long-term plan to divest your estate in a way that minimizes taxes on it.

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Does the estate tax apply to nonmonetary items (cars, boats, etc.)?

The estate tax places a value on your entire estate. Both monetary items (savings accounts, retirement accounts) and material wealth (land, vehicles and other physical property) are evaluated, appraised and taxed.

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