What Assets Are Subject to Estate Tax?

After death, your estate will potentially be subject to estate tax.

However, there is an estate tax exclusion that changes from time to time. But, as the law currently stands, it is pretty safe to assume that at least the first million dollars of your estate's value will not be subject to estate tax.

If your estate has a net worth above one million dollars, then you need to be concerned about estate tax. The reason to be concerned is that the estate tax, if and when it kicks in, is a serious tax.

The federal estate tax rate currently is 45% and the state you live in might also have an estate tax. So, it's easy to see how half of your estate, above the exclusion amount, could go to taxes.

So, which assets are subject to estate tax?

The tax code broadly defines your "gross estate" as "the value at the time of ... death of all property, real or personal, tangible or intangible, wherever situated" (26 USC ยง 2031). This includes both probate and non-probate assets. So, for estate tax purposes, your estate assets will include your:

Home Tax
  • Home
  • Vehicles, boats, planes
  • Investments (stocks, bonds, mutual funds, etc)
  • Business interests
  • Life insurance policies *
  • Annuities
  • Savings accounts
  • Checking accounts
  • Certificates of Deposit
  • Jewelry
  • Collectibles, and
  • Other personal property

There is a common misconception that life insurance is not taxed. It is true that the recipient of life insurance proceeds is not taxed upon receipt of them (so, no income tax). However, generally, the value of the life insurance policy is included in the estate, of its owner, and could be subject to estate tax. However, one way to avoid estate tax on life insurance is through an Irrevocable Living Trust.

People often underestimate the value of their estate for estate tax purposes. This is particularly true for homeowners whose home has appreciated substantially over the years.

The bottom line is that when you factor in the equity in a home, life insurance policies, and other assets -- even many "middle-class" families need to be concerned about their estates being subject to estate tax.

There are many strategies for reducing, or even eliminating, the estate tax bite. Some of those strategies involve living trusts; some involve testamentary trusts; or other methods.

You can read about one strategy that utilizes a particular type of living trust at Credit Shelter Trust.

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