What is an estate tax?

An estate tax is specifically designed to apply to the transfer of wealth from a deceased individual to their heirs or beneficiaries. This tax is calculated based on the total value of the deceased's estate, which includes all assets such as real estate, bank accounts, investments, and personal property. The estate tax is typically assessed at the time of the individual's death, and it is grounded in the principle that it is the estate itself that is being taxed rather than the individual heirs.

This tax comes into play when the value of the estate exceeds certain thresholds set by the federal government or individual states, which may have their own estate tax laws. The intent of the estate tax is to ensure that a portion of the wealth accrued during a person’s lifetime contributes to the public good, especially as it is transferred to the next generation.

The other options presented do not accurately capture the nature of the estate tax. A tax on property owned during life pertains to property taxes, a tax on annual income refers to income tax, and a tax on wealth accumulated over a lifetime is broader and may not specifically denote the transfer aspect that distinguishes estate taxes.