28th Nov 2012
The point that I wanted to make clear in the making of this post is that the following terms: (1) estate tax, (2) inheritance tax and (3) death tax, all have the same meaning. These three terms all relate to the tax imposed on a decedent’s estate by the federal or applicable state government. I have never heard of a municipality, i.e. a city, imposing a tax on a decedent’s estate. There is much confusion often on these terms and people think that these are separate taxes but it is all the same tax with different ways to describe it.
When people inquire about the estate tax, although they use the term “inheritance tax” typically, I explain what it is and then they many times will ask if the estate tax is different from the inheritance tax. As mentioned, there is no difference between the terms. So if you invoke the inheritance tax, you are also alluding to the estate tax as well. One could say that all roads lead to Rome when the phrase (1) estate tax, (2) inheritance tax or (3) death tax is mentioned.
Another term that often has a lot of confusion are “living trusts.” This is another informal legal term that has supplanted the formal legal term. If a trust is created during a person’s lifetime, this is known as an “inter vivos” trust (Latin for among the living). Since the term “living trust” is more easily comprehensible than “inter vivos trust,” most people just refer to it as a living trust. Just for your information, if a trust is created at death, this is known as a testamentary trust. A trust is created at death commonly through a will.