Wealth Transfer Tax refers to taxes imposed on the transfer of assets from one individual to another, typically occurring at the time of death or through gifts during a person’s lifetime.
This tax encompasses both the federal estate tax and the gift tax. The federal estate tax applies to the total value of a deceased person’s estate, while the gift tax is levied on the value of gifts given by an individual during their lifetime that exceed certain annual exclusion limits.
For example, if an individual passes away and their estate is valued at $5 million, and the applicable estate tax rate is 40%, the estate may owe $2 million in estate taxes. Similarly, if an individual gifts $15,000 to a friend in a year, the amount above the annual exclusion limit (if applicable) may be subject to gift tax.
Wealth transfer taxes are designed to reduce the concentration of wealth and ensure tax revenue for the government, and they play a significant role in financial and estate planning strategies.
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