Personal Finance 1st Edition by Jack R. Kapoor

Exercise 22

1 What are the four types of taxes to consider in planning your estate?

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2 How is estate tax calculated?

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3 What are the various ways to handle the payment of estate tax?

Action Application Ask your state department of revenue for brochures on state inheritance and gift taxes. What are the exemptions and rates of taxes? How are your property and life insurance treated for the purpose of inheritance tax? Of gift tax?

Step 1 of 3

(1) Explain the four types of taxes to consider in planning your estate:

Following are the four types of taxes which have to be considered while making an estate planning:

• Estate taxes: It is a federal tax upon the rights of the deceased person to transfer his/her property and life insurance at death.

• Estate and trust federal income taxes: In addition to federal estate taxes, certain trusts and estate have to file federal income tax returns with Internal Revenue Services.

• Inheritance taxes: It is the tax which is levied on the right of a heir to receive the estate.

• Gift tax: It is a state and federal tax on the privilege of making a gift to others.