**Estate Tax** (noun) — A tax levied on the net value of a deceased person's estate before distribution to beneficiaries, calculated based on the total assets owned at death minus allowable deductions and exemptions.
Estate tax is a tax on the right to transfer property when you die. The government assesses the total value of everything you owned, subtracts your debts and certain exemptions, and then taxes what's left before it can be distributed to your beneficiaries.
Estate tax rules vary significantly by country. The United States has a federal estate tax, though with a high exemption threshold that means most estates don't pay it. Australia abolished estate taxes in 1979 and currently has no death duties at the federal or state level. The UK has inheritance tax. Many other countries have various forms of estate or inheritance taxes.
Even in jurisdictions without estate tax, there may be other tax obligations when someone dies. Capital gains tax might apply on deemed disposition of assets, income tax returns must be filed for the period before death, and the estate itself might have tax obligations during administration. Understanding your jurisdiction's tax rules is an important part of estate planning.
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In countries with estate tax, the tax can significantly reduce what beneficiaries actually receive. Estate planning in these jurisdictions often focuses heavily on strategies to minimize estate tax liability, such as making lifetime gifts, setting up trusts, or using insurance to provide funds to pay the tax.
The estate tax exemption amount can be substantial. In the United States, for example, the federal exemption has been several million dollars in recent years, meaning most estates don't owe federal estate tax. However, some states have their own estate taxes with lower exemptions. International estates can face complex tax situations if the deceased had assets in multiple countries.
Even in Australia where there's no estate tax, estate planning must still consider tax implications. When assets transfer on death, this can trigger capital gains tax obligations. Superannuation death benefits might be taxed depending on the beneficiary and how the benefit is paid. Getting professional tax advice is part of comprehensive estate planning in any jurisdiction.
**Related terms:** [Inheritance Tax](/dictionary/inheritance-tax), Capital Gains Tax, [Estate Tax Return](/dictionary/estate-tax-return)
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"We moved from the US to Australia partly because Australia has no estate tax—our kids will inherit everything without the government taking 40% like they would have in America."