Estate Taxes

What is Included in the Calculation of My Estate?

Now that you know the estate tax rate limits, you may wonder what the government includes in the calculation of your assets. According to the IRS, your gross estate includes “the value of all property in which you had an interest at the time of death.” This includes:

• Stocks
• Bonds
• Mutual Funds
• Cash
• Money Markets
• Real Estate
• Retirement Accounts
• Business Partnerships
• Automobiles
• Personal Residences (less the outstanding mortgage value)
• Collectibles (Art, Musical Instruments, Fine China)
• Taxable Lifetime Gifts (those you made in excess of the $11,000 per-annum tax-free threshold)
• Clothing
• Furniture
• Annuities Payable to Your Estate
• Certain Property You Transferred Within 3 Years Prior to Death
• Life Insurance Proceeds Payable to Your Estate or the Heirs

There are, however, a few deductions but these are mostly limited to funeral expenses, debts owed at the date of death, and assets transferred to a spouse (e.g., a wife could inherit her husband’s entire estate and not incur any federal estate tax).

Practically, the inclusion of illiquid assets in the calculation of your estate tax liability can force your heirs to sell off part of their inheritance. Imagine, for example, that you own a farm that has been in the family for generations; on the land sits a century-old farmhouse. In recent years, the local township has experienced tremendous growth, pushing up the appraised value of your property.

Your family may be living season-to-season but, rest assured, when you pass away and the estate is transferred to your children, the value is likely to exceed the estate tax limit. In order to pay the bill, your heirs are going to have to sell off part of the beloved family farm and, in a worst-case-scenario, move elsewhere.

Scenarios such as these can largely be avoided by consulting with a qualified estate tax planner.