Taxes You Owe After Death: Estate Taxes

The IRS levies a tax—at a rate of 40% or more—on the right to transfer property upon death. You, or, more accurately, the Administrator of your estate, must detail everything you owned or had a financial interest in at the time of your death. This includes, but is not limited to, cash, securities, real estate, insurance policies, trusts, annuities, business interests, and intellectual property. The fair market value (which is not necessarily the same price you paid) of these things must also be appraised and disclosed. Taken together, these things form your “gross estate.”

Once your gross estate is ascertained, some deductions (and possibly reductions in value) apply. Examples of such deductions are debts (including mortgages), estate administration expenses, and property that passes to a spouse or qualified charity. What remains after such deductions is the “taxable estate.” The value of all “lifetime taxable gifts” (gifts given after 1976), if any, is then added to it and the tax is calculated.

Simple estates containing cash, publicly traded securities, and easily valued property (but not jointly held property), can be handled without filing an estate tax return. If the estate has combined gross assets and prior taxable gifts totaling $5M or more, then an estate tax return is required. As explained in the following section, Massachusetts’ threshold for the estate tax requirement is much lower: $1 million.