Federal estate taxes are imposed on a person's taxable estate, which is the person's gross estate at death less certain deductions. In order to effectively plan for estate taxes, one must first understand what comprises the gross estate.
The gross estate is the value of all property in which the deceased has a beneficial interest in at death. It does not matter whether the deceased has title or possession of the property. State probate law usually helps determine whether the deceased has a beneficial interest in the property at death.
What are Some Specific Items That are Included in the Gross Estate?
The gross estate includes the value of any annuity or other forms of payments receivable by a beneficiary who survives the decedent. Only the amount attributable to the decedent's contribution is includible in the gross estate.
The entire amount of a jointly held property is included in the gross estate of the decedent if the other holder:
- Is not a spouse of the decedent; and
- Did not furnish his/her own money to acquire the property.
Only one-half of the jointly held property is included in the gross estate of the decedent if the other holder is his/her spouse, regardless of who paid for the property.
Power of Appointment
All property in which the decedent has a power of appointment at death is included in the decedent's gross estate. A power of appointment is a right to control the ultimate disposition of the property. A power that is exercisable only in conjunction with another person or is conditional upon some event happening is not included in the decedent's gross estate.
Insurance proceeds payable on the life of the decedent are included in the decedent's gross estate if they are paid to the estate or the executor of the estate. Insurance proceeds that are paid to a beneficiary other than the estate or the executor of the estate are included in the decedent's gross estate only if he/she possesses incident of ownership at death. Examples of incident of ownership include: right to cancel the policy, power to change beneficiaries, and ability to pledge the policy as a security for a loan.
The gross estate includes property transferred away but in which the decedent retains the right to income, possession, or enjoyment during his/her lifetime.
Gifts within Three Years of Death
Gifts made within three years of death will be included in the gross estate of the decedent if the transferred property would have otherwise been includible in the gross estate but for the transfer.
Some property in which the decedent has given away but has the possibility of returning back to the decedent may be included in the decedent?s gross estate.
The gross estate includes transferred property in which the decedent retains a power to alter, amend, revoke, or terminate the transfer.
Do I Need an Estate Planning Attorney?
Consultation with an attorney experienced in estate planning is essential to crafting an estate plan that is sensitive to both your needs and those of your loved ones. An estate planning lawyer will know which type of will or trust is right for you and will do their best to limit your tax liability.