Estate and gift taxes are a statutory method of taxation that are imposed on large transfers of money and/or property during an individual’s lifetime or at death. Gift taxes are imposed on transfers made during an individual’s lifetime. Estate taxes are imposed on transfers made as a result of death. Most gifts are not subject to the gift tax and most estates are not subject to the estate tax. According to the Internal Revenue Service, only about 2 percent of all estates are subject to estate taxes. Estate and gift taxes are methods the government uses to limit dynastic or familial wealth. Estate taxes are sometimes called death taxes.
An alternative form of death tax is an inheritance tax, which is a tax levied on individuals receiving property from the estate. Federal law does not provide for an inheritance tax, although some states have enacted such laws. A number of individual states also have enacted estate tax laws.
Although the taxation of gifts and estates may seem complex, the calculation of estate and gift taxes is similar to the calculation of personal income taxes. As with the income tax, there are exemptions and credits that are applied before the progressive rate schedule is applied. Estate taxes are different in that they are calculated over a lifetime, rather than year by year.