Massachusetts Life Producer Practice Exam

What tax is typically associated with an individual's death?

1. Income Tax

2. Federal Estate Tax

3. Capital Gains Tax

4. Inheritance Tax

The correct answer is: Federal Estate Tax

The Federal Estate Tax is associated with an individual's death because it is imposed on the total value of the deceased person's estate before distribution to the heirs. This tax applies to the overall net value of the estate, which includes all assets such as cash, real estate, personal belongings, and investments. The Federal Estate Tax is a federal tax that affects estates exceeding a certain threshold in value, which changes periodically due to inflation adjustments and legislative changes. This tax is calculated based on the fair market value of the estate as of the date of death and is paid out of the estate's total assets before any inheritances are distributed to beneficiaries. Other taxes mentioned in the choices relate to different circumstances. Income Tax pertains to taxable income earned during a person's lifetime, Capital Gains Tax is related to the profit from the sale of assets during an individual's life, and Inheritance Tax is levied on individuals receiving property from a deceased person, which some states impose but is not a federal tax. Therefore, the Federal Estate Tax is the most direct tax associated with an individual's death.