ESTATE TAX

levy on the value of property changing hands at the death of the owner, fixed mainly by reference to its total value. Estate tax is generally applied only to estates evaluated above a statutory amount and is applied at graduated rates. Estate tax is usually easier to administer than inheritance tax (q.v.) levied on beneficiaries because only the value of the entire estate need be ascertained. The estate tax was first instituted in Great Britain in 1889 as part of a broad death tax program, and in 1949 it became the only death tax levied there. It was first imposed in the U.S. in 1898 to help finance the Spanish-American War, was repealed in 1902, and was permanently reimposed in 1916 to help finance mobilization for World War I. Various means have been used to avoid or reduce the estate tax, including gifts, generation-skipping trusts, and the creation of limited interests in the estate. The U.S. Tax Reform Act of 1976 reduced the advantage to be gained through such trusts by taxing them. The act also unified the estate and gift taxes. Critics of the estate tax have claimed that it often forces the sale of small family-owned farms and businesses because the tax is based on the value of the estate but there may not be enough cash available to pay it. The 1976 legislation contained provisions designed to mitigate this effect of the tax laws.