Both the federal and many state governments in the United States, including New Jersey, assess an estate tax upon transfer of a deceased person’s assets. Thus, while it is often begrudgingly referred to as a “death tax,” it is actually a type of transfer tax which is imposed upon the transfer of the property in the taxable estate of every decedent (the deceased) who was a citizen or resident of the United States.
The “taxable estate” can be calculated by subtracting permitted deductions from the gross estate. The “gross estate” includes the value of all property that the decedent had an interest in at the time of her death. The gross estate may also include any interest in the estate as dower or curtesy (an amount promised by one spouse to another in the event of death), items that the decedent transferred in the three years prior to death which were not sold for value or excluded as gifts, certain property that the decedent transferred but retained a life estate in, the value of property in which the decedent had a reversionary interest in excess of five percent of the property value, annuities, some jointly owned property, powers of appointment, and some life insurance policies, among other things.
Some common deductions from the gross estate, which are used to calculate the total “taxable estate,” may include funeral expenses, estate administration expenses, claims against the estate, some unpaid mortgages, certain charitable contributions, property or bequests left to the surviving spouse, interest in a qualified family-owned business, and state estate or inheritance taxes.