The Tax Toll at Death
July 2024
Most agree that the only certainties in life are death and taxes. Like a toll imposed for traveling on a road, a tax is imposed on the transfer of a taxable estate.
Estate Tax
A U.S. federal estate tax is imposed on the transfer of a taxable estate. I.R.C. § 2001(a).
For a person that dies in 2024, the tax is imposed at a rate of 40%. I.R.C. § 2001(c).
The tax applies to U.S. citizens. I.R.C. § 2001(a).
EXAMPLE: A is a U.S. citizen with various property interests located in the U.S. and abroad. In 2024, A dies with a taxable estate of $100 million. Assuming a rate of 40%, estate tax of $40 million (100,000,000 x 0.40 = 40,000,000) is imposed on the transfer of A’s estate. I.R.C. § 2001.
The tax also applies to U.S. residents. I.R.C. § 2001(a).
A resident decedent is a decedent who, at the time of death, had domicile in the U.S. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. However, residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. Treas. Reg. § 20.0-1(b)(1).
EXAMPLE: A was born in the U.K. and resides in the U.K. In 2020, A moves to the U.S. with no intention of later leaving the U.S. In 2024, A dies with a taxable estate of $100 million located in the U.S. and abroad. Assuming a rate of 40%, estate tax of $40 million (100,000,000 x 0.40 = 40,000,000) is imposed on the transfer of A’s estate. I.R.C. § 2001.
The estate tax is foundational to the Code, and a response to the concentration of wealth in the Gilded Age. At the turn of the 20th century, President Theodore Roosevelt called for:
a progressive tax on all fortunes beyond a certain amount, either given in life or devised or bequested upon death to any individual – a tax so framed as to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual.
The tax was adopted in 1916 and, from inception, had many of the characteristics that exist today.
In all cases where the gross estate at the death of a citizen or resident exceeds the basic exclusion amount for the calendar year of death ($13,610,000 in 2024), the executor is required to make a return with respect to the estate tax imposed. I.R.C. § 6018(a)(1). Reporting is made on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
The due date for filing the return and payment of tax is nine months after the date of death. I.R.C. § 6075(a); I.R.C. § 6151(a).