What Comprises Your Estate?

Although you may not own a castle, do you know which of your “treasures” will be included in your estate? Federal estate taxes can take a large chunk out of the assets you hope to leave your heirs. Federal estate taxes will generally be due if the sum of your net taxable estate at your death exceeds your individual estate tax exemption.*

Regulations relating to the taxation of property owned at death contain a catch-all definition stating that the “gross estate of a decedent who was a citizen or resident of the United States at the time of his death includes the value of all property—whether real or personal, tangible or intangible, and wherever situated—beneficially owned by the decedent at the time of his death.” What does this mean? The first step in understanding the potential implications of the Federal estate tax is to know what major items comprise your estate. Consider the following points:

  • Personal assets. Most people are aware that their personal property, savings, real estate, and retirement plans, as well as the proceeds of any life insurance policies they own, are included in their estates.
  • Rights to future income. What may be less well-known is that rights to future income, such as payments under a deferred compensation agreement or partnership income continuation plan, may be includable in your estate. These rights are commonly referred to as “income in respect of a decedent (IRD)” and may be includable at their present cash value.
  • Business interests. Interests in any business you own at death, whether as a proprietor, a partner, or a corporate shareholder, may be includable in your gross estate.

It is important to note, however, that the value of Social Security survivor benefits, received as either a lump sum or a monthly annuity, is not includable in your gross estate.

Reassess Your Goals

Determining what may be included in your gross estate may require professional analysis. Periodically, it may be wise to have your estate reevaluated to help protect your beneficiaries and heirs from having to choose between fulfilling your wishes and meeting Federal estate tax requirements. Bear in mind that certain estate planning documents, coupled with adjustments to property ownership arrangements, can help minimize estate taxes and maximize estate tax credits. Consult with your qualified financial, legal, tax, and insurance professionals to help ensure your current decisions are consistent with your long-term estate planning goals.

* The Federal estate tax in 2017 has an exemption of $5.49 million and a top tax rate of 40%.


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