Properly planning your estate includes knowing the real, taxable value of your estate’s entirety. Some people underestimate the value of their estate, leaving their children with a heavier tax burden that must be satisfied by assets and accounts they were set to inherit, while others overestimate it and end up with unaccounted for assets and wealth to be distributed through intestacy laws.
In reality, the process of valuing your estate, especially when large accounts, property, or business interests are involved, can directly affect the tax owed before anything reaches your heirs. Knowing what counts toward your estate’s value and how taxes are applied allows you to plan with more clarity, avoid surprises, and build a strategy that protects what you’ve worked so hard to create.
What Assets and Accounts are Included in the Valuation of Your Estate?
The starting point for calculating potential estate taxes is identifying the tax basis of certain assets that belong in your “gross estate.” This includes virtually anything you own or control at the time of your death. Think real estate, business interests, cash accounts, investment portfolios, and retirement funds. If you retain control over something or benefit from it, there’s a good chance it’s included.
Valuation is based on fair market value (what the asset would sell for in an open market on the date of your death). That means assets aren’t always valued by what you paid for them but by what they’re worth at that moment. For example, a home purchased decades ago for $500,000 and now worth $2 million adds its full current value to your estate’s total. It is important to note that the gross estate is not reduced by debts, mortgages, or other deductions for the purpose of determining whether the estate exceeds the filing threshold.
The gross estate may also include assets held in certain trusts, life insurance death benefits (if you retained any ownership rights in the policy), certain transfers made within three years of death, property over which the decedent had a general power of appointment, and your share of jointly owned property, depending on the form of ownership and how the property was acquired.
Determining Your Federal Estate Tax Rate
The federal government sets a threshold each year for estate tax exemption ($13,990,000 for 2025). If your estate’s gross value (coupled with any lifetime gifting that exceeded annual limits) is under that threshold, you’re not subject to federal estate taxes. For higher-value estates, the IRS applies a graduated rate, topping out at 40%.
The exemption is high enough that many estates won’t trigger the tax, but business owners with property, investments, and company shares often find themselves over the line, especially when life insurance and trusts are factored in.
Estates have the option to use the value of the estate as of the date of death or, under some conditions, an alternate valuation date six months later. This can help reduce the taxable amount if values drop during that period. However, the alternate date must be used for all assets, not selectively.
Determining Your Federal Estate Tax Amount
Once you’ve confirmed that your gross estate exceeds the federal filing threshold, the next step is to calculate the actual amount of estate tax owed. This involves accounting for and subtracting certain deductions from the gross estate to arrive at the taxable estate (the portion subject to federal estate tax).
Allowable deductions can include:
- Outstanding debts and mortgages
- Funeral and administration expenses
- Certain taxes accrued before death
- Charitable bequests
- The marital deduction, which allows for tax-free transfers to a surviving spouse
Once these deductions are applied, what’s left is the taxable estate. The IRS then applies a graduated tax rate to that amount, with a maximum rate of 40% on the highest value tiers. After computing the base estate tax, available credits (such as for state death taxes) are subtracted to determine the net estate tax due.
It’s important to distinguish between valuation for filing and for taxation. When determining if an estate tax return (Form 706) is required, the gross estate value is used. This includes all assets owned or controlled at death and does not take deductions into account. If the gross estate exceeds the filing threshold, a return must be filed even if deductions later reduce the taxable estate below the exemption amount.
Accounting for Estate Taxes in Your State
Federal taxes aren’t the only concern. A dozen states and the District of Columbia impose their own estate taxes, and in those states, lower exemption limits can cause more families to be affected. While California does not impose an estate tax, families with property or interests in states like Oregon or Washington may be exposed. Each state has its own exemption thresholds and tax rates, so if you maintain ties outside of California, state-specific planning becomes just as important as federal planning.
Minimizing Your Estate Tax Liabilities
There are proven strategies to reduce estate tax exposure while keeping your long-term goals intact. From properly structured trusts to lifetime gifting and charitable contributions, there are ways to transfer wealth efficiently and responsibly. The right plan protects your beneficiaries and preserves your legacy. Our firm has developed a deep understanding of how to apply these strategies for California business owners and their families. The earlier these decisions are made, the more options are available. Contact Dahl Law Group to start building a plan that reflects your values and shields your estate from unnecessary tax burdens.
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