Fortunately, the federal estate tax exemption is particularly generous, at least through 2025. The Tax Cuts and Jobs Act provides the $11.7 million federal exemption in 2021 ($12.06 million in 2022), so the average estate won’t have to worry about this tax. Only the value of estates over this amount is subject to the federal estate tax. However, several states impose their own estate taxes with much smaller exemptions.
Financial Accounts as Part of Your Estate
All of your checking, savings, and money market accounts are included in your gross estate. Certificates of deposit, cash, cash equivalents, investment accounts, exchange-traded funds, bonds, mutual funds, other investment securities, and U.S. savings bonds all need to be included as well. Each account’s entire value is included if they are in your sole name, including payable on death accounts, or if you placed it in a revocable living trust. If an account is in joint names, you only include your proportionate interest. For instance, if your spouse’s name is on the account also, you’d only include 50% of the value because spouses have rights of survivorship. However, this goes back up to 100% if the account is a joint account with someone other than your spouse.
Personal Effects Included in Your Estate
Furniture and furnishings, clothing, jewelry, antiques, collectibles, artwork, books, firearms, computers, televisions, and other electronics are all included in your gross estate. Of course, some of these items might have negligible value and would be inconsequential. Your toothbrush is a personal effect, but it won’t nudge up the value of your estate. The executor of your estate will most likely have to arrange for appraisals of big-ticket items to determine their value. Generally, this happens with antiques, jewelry, artwork, and collectibles.
Automobiles, Boats, and Airplanes
The rules for vehicles, boats, and airplanes mirror those for financial accounts. The entire value is included if they’re in your sole name or the name of your revocable living trust. Only 50% is included if they’re held in joint names with your spouse; 100% of the value is included if they’re in joint names with someone other than your spouse unless it can be proven that the other owners helped purchase the vehicle.
Money Owed to You
You also include mortgages held by you that another person is paying or personal loans you’ve made to others in your gross estate. In addition, unpaid wages, bonuses, commissions, and royalties owed to you contribute to your estate dollar for dollar.
Life Insurance
If you have a life insurance policy, the death benefit (the total payout amount to your beneficiaries) is included in your gross estate if you took out the policy on your own life. Otherwise, only the cash value is included if you own the policy on someone else’s life. You must also include life insurance owned by you that’s transferred to an irrevocable life insurance trust within three years of your date of death.
Retirement Accounts
You’ll need to include your retirement accounts when determining your gross estate. This includes Roth and traditional individual retirement accounts (IRAs), Simple and SEP IRAs, 401(k)s, annuities, and 403(b)s that you may have through an employer. Your estate value will include 100% of these values.
Closely-Held Business Interests
If you have any closely-held interests in sole proprietorships, partnerships, limited liability companies (LLCs), and stock held in closely-held corporations, you include the total value of your ownership interest in your gross estate.
Real Estate in Your Gross Estate
Real estate follows the same rules as financial accounts and vehicles. Liens against the property, such as mortgages, can be deducted from the value.
Certain Trust Assets
Certain trusts of which you’re a beneficiary, including a trust over which you have a “general power of appointment,” are included in your gross estate at the full value of the trust property. This includes the full value of an “A Trust” established for your benefit as a surviving spouse using true “AB Trust” planning. It does not include irrevocable living trusts.
Taxable Lifetime Gifts
These are gifts you might have made in excess of the annual gift tax exclusion amount in the year in which you made the gift. The exclusion amount is $15,000 per person per year ($16,000 in 2022), and it’s increased periodically to adjust for inflation. You could apply $5,000 to your federal estate tax exemption if you gave a $20,000 gift.
