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What is the difference between gross estate and taxable estate?

The gross estate is the total value of your estate. The taxable estate is the amount of your estate that counts for the federal estate tax once you take allowed deductions and credits. Because the federal estate tax only kicks in once you meet the taxable estate threshold of at least $5.43 million in value, reducing gross estate values through deductions can be extremely beneficial.

The gross estate value is calculated through accounting that is done based on the date of death of an individual. All assets and liabilities on that date are considered, including assets such as real estate, trusts, cash in accounts, annuities and other investments, insurance and real properties such as vehicles and jewelry. The total value of all items becomes the gross estate value.

The total value of the estate is then countered by liabilities and other deductions. For example, mortgages impact the true value of real estate, and other debts can impact the value of the estate. Other expenses that might be deductible include expenses related to administering the estate and certain assets that are in specific types of trusts or other legal holdings. Because estate law is complex and deductions can make such a big difference in tax liability, consulting with an experienced estate law and tax professional can help ensure estate taxes are paid appropriately with the best possible savings achieved.

Since the threshold for federal estate taxes is so high -- and thresholds also exist for state taxes -- many people don't find themselves encumbered by estate taxes at all. With a growing number of people reaching net worth of $5 million in their lives; however, more estates are having to pay attention to tax issues

Source: Internal Revenue Service, "Estate Tax," accessed Sep. 11, 2015

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