Gift Tax

Estate Tax

A federal or state tax imposed on the transfer of a deceased person's assets to their heirs, calculated based on the total value of the estate above a certain exemption threshold. As of recent years, the federal estate tax exemption is quite high, meaning most estates do not owe federal estate tax, though some states impose their own estate taxes with lower thresholds. Proper estate planning using trusts and other strategies can help reduce or eliminate estate tax liability.

Irrevocable Trust

A trust that generally cannot be changed, modified, or revoked once it has been established, effectively removing the assets from the grantor's ownership and control. Because the assets are no longer considered part of the grantor's estate, irrevocable trusts can provide significant estate tax benefits and asset protection from creditors. They are commonly used in advanced estate planning strategies where tax reduction and wealth preservation are primary goals.

Generation-Skipping Trust

A trust designed to transfer assets directly to grandchildren or later generations, bypassing the children's generation to minimize the total estate taxes paid across multiple generations. Without this type of trust, assets could be taxed at each generational transfer, significantly reducing the amount that ultimately reaches future descendants. The generation-skipping transfer tax (GST tax) applies to transfers above a certain exemption amount to prevent unlimited tax-free transfers across generations.

Marital Deduction

A provision in federal estate and gift tax law that allows an unlimited amount of assets to be transferred between spouses without incurring estate or gift taxes. The marital deduction effectively defers estate taxation until the death of the surviving spouse, at which point the combined estate may be subject to tax. Proper estate planning often combines the marital deduction with trusts like bypass trusts and QTIP trusts to maximize the total amount shielded from estate taxes.