In order to calculate your estate tax liability, you must first figure out the amount of your taxable estate. The taxable estate is the gross estate less certain deductions. One of the deductions that the tax law allows is a deduction for certain expenses and losses of the decedent.
The following list of expenses and losses are allowed as a deduction against the gross estate of the decedent:
- Funeral and burial expenses of the decedent, including tombstone, monument, and burial lot costs
- Administrative expenses of the estate paid to the executors and the trustees. These include commissions, attorney’s and accountant’s fees, selling expenses, and other miscellaneous expenses for services
- Debts that the decedent owes at the time of death
- Taxes accrued before death
- Full amount of any unpaid mortgages or other indebtedness secured by the decedent’s property if such property is included at its full undiminished value in the decedent’s gross estate
- Interest accrued on mortgages or other indebtedness up to the date of death
- Losses from fires, storms, shipwrecks, theft, or other casualties. Only uncompensated losses are allowed as a deduction.
For estate administrative expenses, the executor has a choice of either taking the deduction against the estate tax or the income tax of the estate.
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 lawyer will know which type of will or trust is right for you and will do their best to limit your tax liability.