You must first calculate the value of your gross estate if you want to calculate your estate tax liability, if any. Assets that must be included in your gross estate include banking and investment accounts and real estate, among other property. A critical factor can be how you hold title.
Fortunately, the federal estate tax exemption is particularly generous, at least through 2025. The Tax Cuts and Jobs Act provides for the $11.75 million federal exemption in 2021, so the average estate won't have to worry about this tax. Only the value of estates over this amount is subject to the estate tax.
Several states impose their own estate taxes with much smaller exemptions, however.
Financial Accounts as Part of Your Estate
You must include all checking, savings, and money market accounts, as well as certificates of deposit in your gross estate. The entire value is included if the account is in your sole name, including payable on death accounts, or if you placed it in a revocable living trust.
But only 50% of the value is included if the account is in joint names with your spouse, because spouses have rights of survivorship. This goes back up to 100%, however, if the account is in joint names with someone other than your spouse unless you can prove that the other account owner or owners made contributions to the account.
Only your proportionate interest is included if the account is in joint names as tenants in common.
These rules also apply to investment accounts, such as brokerage accounts that hold stocks, exchange traded funds, bonds, mutual funds, or other investment securities, as well as to U.S. savings bonds.
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, however, to determine their value. This would be the case 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 in the name of your revocable living trust. Only 50% is included if they're held in joint names with your spouse, and 100% of the value is included if they're in joint names with someone other than your spouse unless it can be proved that the other owners helped to purchase the vehicle.
Money Owed to You
This can include mortgages held by you that another person is paying on, personal loans you've made to others, or wages, bonuses, commissions and royalties owed to you but as yet unpaid at the time of your death. These assets contribute to your estate dollar for dollar.
The entirety of the proceeds are included in your gross estate if you own 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 (ILIT) within three years of your date of death..
This category includes Roth and traditional individual retirement accounts (IRAs), Simple and SEP IRAs, 401(k)s and 403(b)s that you may have through an employer, and annuities. Your estate value will include 100% of these values.
Closely-Held Business Interests
These would include any interest you hold in sole proprietorships, partnerships, limited liability companies (LLCs), and stock held in closely-held corporations. The value of your ownership interest is included.
A closely-held corporation's stock are shares held by a small group or a single individual in a business.
Real Estate in Your Gross Estate
Real estate follows the same rules as financial accounts and vehicles. But any 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," will be 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 as of 2020, 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.