This report explains the major provisions of the federal estate, gift, and generation-skipping transfer taxes as they apply to transfers in 2014. The enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 phased out the estate and generation-skipping transfer taxes over a 10-year period, leaving the gift tax as the only federal transfer tax in 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 temporarily (through the end of 2012) reinstated the estate and generation-skipping transfer taxes with lower top rates and larger exemptions and reunified the estate and gift taxes. The American Taxpayer Relief Act of 2012 permanently extended the estate tax rules enacted by the 2010 Act except for the top tax rate, which increased from 35% to 40%. The federal estate and gift taxes are unified as they utilize the same rate structure. Federal estate and gift taxes also share a lifetime transfer credit. For 2014, this unified credit covers an applicable amount of $5,340,000 per individual. The federal estate, gift, and generation-skipping transfer tax laws are rather lengthy and complex. This report discusses those major Internal Revenue Code (IRC) and Internal Revenue Service (IRS) regulation provisions which play the dominant role in the determination of estate, gift, and generation-skipping transfer tax liability. This discussion relates only to the taxation of United States citizens and resident aliens while different rules apply to the taxation of nonresident alien individuals. For a discussion on transfer taxes for nonresident aliens, see CRS Report R43576, Estate and Gift Taxes for Nonresident Aliens , by [author name scrubbed]. The federal estate tax is a tax on the estate of a decedent, levied against and paid by the estate. Contrastingly, the inheritance tax is imposed on and paid by the heirs of the decedent based upon the money or property that they receive. The determination of federal estate tax liability involves a series of adjustments and modifications of a tax base known as the "gross estate." Certain allowable deductions reduce the gross estate to the "taxable estate." Then, the total of all lifetime taxable gifts made by the decedent is added to the taxable estate before tax rates are applied. The result is the decedent's estate tax which, after reduction for certain allowable credits, is the amount of tax paid by the estate. This discussion will divide the federal estate tax into three components: the gross estate, deductions from the gross estate, and computation of the tax, including allowable tax credits. The gross estate of a decedent includes the value of all property, real or personal, tangible or intangible, wherever situated, in which the decedent owned an interest on the date of the decedent's death. The gross estate may also include certain interests in property which the decedent had transferred to another person at some time prior to the date of death. Certain types of property may be included in the decedent's gross estate if specific IRC conditions are met. Proceeds from a life insurance policy on the life of the deceased may qualify as part of the gross estate if either the proceeds are payable to or for the use of the estate's executor, or if the decedent held any "incidents of ownership" in the policy on the date of death or gave away such incidents of ownership within three years of the date of death. An incident of ownership is an economic right in the policy, such as the right to cancel the policy, change the beneficiary, or borrow against its cash surrender value. Similarly, the value of a survivor's annuity payable because of the death of the decedent is included in the decedent's gross estate if the deceased had the right to receive a lifetime annuity under the same contract. The value of property owned by the decedent jointly with a right of survivorship in another person, other than the decedent's spouse, may also qualify as part of the gross estate. The contribution of money or money's worth of consideration towards the cost of acquiring the property by someone other than the decedent subsequently reduces the contribution of that property to the gross estate. However, only one-half of the value of property owned jointly with a right of survivorship by a decedent and the surviving spouse, regardless of the relative contributions of the decedent and the surviving spouse, may qualify as part of the gross estate. In a number of instances, the value of a decedent's gross estate encompasses the value of property not owned by the decedent on the date of death. For example, a decedent's gross estate can include the value of lifetime gifts over which the decedent retained a life interest or the power to alter, amend, terminate, or destroy the beneficial enjoyment of the property. Lifetime gifts that do not take effect until the date of death, irrespective of the number of years that have elapsed between the date of the gift and the date of the donor's death, are also included in the donor's gross estate. However, the gross estate does not include property sold during the decedent's lifetime for full and adequate consideration. The decedent's gross estate also includes all property subject to a general power of appointment held by the decedent on the date of death, even if the decedent died without exercising that power. A power of appointment is a right, held by a person other than the owner of property, to determine who will enjoy the ownership of or benefit of the property. A power of appointment is "general" if it may be exercised by its holder in favor of the holder, the holder's estate, the holder's creditors, or the creditors of the holder's estate. If a power cannot be exercised in favor of these classes of persons, it is not a general power of appointment, regardless of the size of the classes of beneficiaries in whose favor the power can be exercised. The property and interests included in the decedent's gross estate are valued at their fair market value on the date of death or, if elected by the executor at his/her discretion, the alternate valuation date. The alternate valuation date is the earlier of either the date of distribution or disposition of the property by the estate or the date six months after the date of death. The "fair market value" of property is the price at which the estate property would change hands between a willing buyer and seller. In such a sale, the buyer and seller should not be compelled to buy or sell. Additionally, both parties should have reasonable knowledge of the relevant facts. The fair market value price does not reflect a forced sale price but the sale price in a market in which the item is most commonly sold to the public. The IRS regulations outline valuation rules for certain types of property such as stocks and bonds, family farms, and closely held businesses where the estate must determine the fair market value under specific conditions. A decedent's taxable estate is determined by reducing the gross estate with allowable deductions, including estate administration expenses, certain debts and losses, the amount of qualified transfers to a surviving spouse, charitable bequests, and state death taxes. The first deduction to which an estate is entitled is for the funeral expenses, administration expenses, claims against the estate, and unpaid mortgages paid by the estate (to the extent not reflected in the reduced value of estate assets). The estate may deduct these payments if they are paid by the estate and are permitted under the laws of the applicable jurisdiction in which the estate is administered. Additionally, the estate may deduct the amount of any casualty or theft losses sustained by the estate during the settlement of the estate, to the extent such losses are not compensated by insurance. The estate may also claim a "marital deduction" for the value of all property passing to the decedent's surviving spouse. Only non-terminable interests passing to the surviving spouse qualify for this marital deduction. Interests that may terminate in favor of another person upon the lapse of time, the occurrence of an event or contingency, or the failure of an event or contingency to occur, generally do not qualify for the estate tax marital deduction. Special exceptions to the terminable interest rule are made for certain transfers in trust of a lifetime income interest if the executor elects to include the value of the trust property in the surviving spouse's gross estate and for certain life estates coupled with a general power of appointment. Certain life insurance settlement options and certain interests conditioned upon survivorship for a reasonable period not exceeding six months also serve as exceptions to the terminable interest rule. A deduction for certain charitable bequests and devises to qualified charitable organizations also reduce the value of the gross estate. Although the rules are not identical, the estate tax charitable deduction functions similarly to its income tax counterpart with the purpose of encouraging charitable contributions. The gross estate is also reduced by the amount of any estate, inheritance, legacy, or succession taxes actually paid to any state or the District of Columbia in respect to property included in the gross estate. Under the unified estate and gift tax system, computation of a decedent's estate tax liability requires a "grossed-up," or a combination, of the decedent's lifetime taxable gifts and the decedent's taxable estate to which the tax rate schedule is then applied. Any available credits are subsequently taken to obtain the decedent's actual estate tax liability (the amount of tax to be paid by the estate). The estate rate schedule is as follows: There are three major estate tax credits presently in effect: the unified transfer tax credit, the credit for foreign death taxes, and the credit for federal estate taxes paid by previous estates. Each credit is a dollar-for-dollar offset against an estate's federal estate tax liability. The unified transfer tax credit is available against both lifetime gift tax liabilities and the estate tax liability. To the extent this credit is used to offset gift taxes, it is unavailable to offset estate taxes. The IRC refers to the credit as an "applicable exclusion amount," that is, the amount of taxable gifts or estate that the credit would cover. The applicable exclusion amount in 2014 is $5,340,000.