Taxable Estate

Taxable estate is the fair market value of one’s assets (i.e. gross estate) minus applicable liabilities and deductions. The taxable estate is used to derive estate taxes owed. Included in the taxable estate calculation is cash, real estate, trusts, annuities, insurance policies and any other assets (i.e. gross estate). Liabilities and other deductions are then subtracted from the gross estate to arrive at the taxable estate. The specific tax deductions and liabilities that affect the taxable estate include:

1. Funeral expenses paid out of the estate
2. Marital deduction (property of the gross estate transferred outright to the surviving spouse and certain qualifying life estates)
3. Charitable deduction (portions of the estate transferred to qualifying charities)
4. State death tax deduction
5. Mortgages and Liens
6. Expenses and losses related to the administration of the estate

The gross estate and deductions included in the taxable estate have to be reported on IRS Form 740, Part 5–Recapitulation.

Individuals may choose to transfer assets that would ultimately be considered part of their taxable estate to minimize estate taxes. However, the three-year rule applies to the calculation of taxable estate so certain types of property transferred within three years of the estate owner’s death, although transferred, may be added back to the taxable estate.

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