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Helping People Age with Dignity

How is estate value determined for federal estate tax purposes?

One strong desire that many elderly individuals here in Massachusetts have is that, when they die, as much of the property they acquired over their life goes to the people they care about as possible. Thus, they generally want as little of their estate redirected, upon death, to other sources as possible. One thing that can lead to such unwanted redirection of portions of a deceased person's estate are estate taxes.

One type of estate tax some estates are subject to is the federal estate tax. A deceased person's estate is subject to the federal estate tax if it exceeds a certain value threshold. The specific rules for this year are that the federal estate tax applies to estates where the total value of prior taxable gifts and combined gross assets exceeds $5,430,000.

Thus, what specifically the value of the assets in a person's estate is can be a very impactful thing when it comes to the estate tax. Consequently, one question an individual may have is: what value is used in calculating the values of estate assets when determining if an estate exceeds the value threshold for the federal estate tax?

We will start by mentioning a couple of the things that are not used when determining estate asset value for federal estate tax eligibility purposes. The value the property had at the time it was acquired is not used. Also, the price paid for the property when it was acquired is not used.

Rather, what is used is the current fair market value of the property. 

Understanding whether their estate could potentially trigger an federal estate tax liability upon their death can be very important for an elderly individual when they are estate planning. This is because there are planning strategies that can sometimes help reduce or eliminate an estate's future estate tax exposure. Elder law attorneys can help individuals determine if their estate raises any estate tax issues and, if it does, can assist them with estate tax planning.

Source: Internal Revenue Service, "Estate Tax," Accessed March 17, 2015

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