An Introduction to the U.S. Estate Tax

The U.S. federal government imposes a Federal Estate Tax on the value of all property transferred at the time of an individual’s death. In addition, some states, such as New York and Washington, also levy state estate taxes. To prevent individuals from bypassing estate tax by directly transferring assets to grandchildren, the U.S. has implemented the Generation-Skipping Transfer Tax (GSTT), which applies when assets are passed to grandchildren. Some states, like New Jersey, do not impose an estate tax but instead levy an inheritance tax, which taxes the recipients of the inheritance rather than the estate itself.

This article provides an overview of the U.S. estate tax, including who is subject to the tax, the tax base, the rates and exemptions, the use of foreign grantor trusts to avoid estate tax, and potential pitfalls.