Estate planning: A process by which an individual designs a strategy and executes a will, trust agreement, or other documents to provide for the administration of his or her assets upon his or her incapacity or death. Tax and liquidity planning are part of this process.
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Estate tax: A federal tax imposed on a decedent’s transfer of property at death if the estate exceeds an exclusion limit set by law. An estate tax is different from an inheritance tax which is imposed by certain states on a beneficiary’s receipt of inherited property. Since more than 20 states have such state inheritance taxes, your estate could be subject to both federal and state taxes.