The federal estate tax is a tax on all property of a deceased person. The reader should be aware that these provisions are subject to change. The Economic Recovery Act of 1981 made major changes in the estate and gift tax laws. Additional changes were made more recently. The Economic Growth and Tax Relief Reconciliation Act of 2001 imposed complex changes that will be phased in between 2002 and 2009 with outright repeal of Federal estate taxes in 2010. However, the new law specifically provides that it will have no effect on estates of decedents dying after December 31, 2010, and the exemption will be $1,000,000.
The gross estate includes all real and personal property, whether tangible or intangible. These properties include the following:
• For decedents dying after 12/31/1981, the estate of the first spouse to die will include one-half the value of joint tenancy property, regardless of which spouse furnished the consideration for the property. This rule applies only where the spouses are the only joint tenants.
• All death benefits under life insurance policies on life of decedent owned or controlled by him or payable to his estate and cash values of all life insurance policies owned by him on lives of others.
• Lifetime gifts are no longer included in the gross estate, although the taxable portion will be included in the tax base for estate tax computations.
• Property over which the decedent held a general power of appointment.
• Property given away during life in which the decedent retained some control or a life estate. Revocable trust assets are included because the deceased retained control until death.
The property must be appraised at its fair market value, or if the executor elects, certain qualified property may be appraised at its current use value. Current use values for qualified property and the current market value will be discussed later in this material. Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to sell or buy.