Determining the Adjusted Gross Estate

Once the gross estate is calculated, certain deductions are allowed in arriving at the adjusted gross estate. Allowable deductions fall into three categories:

  1. Funeral & Administrative Expenses

Funeral expenses are deductible, provided they are reasonable. Administrative expenses encompass those costs of administering property (e.g., court costs, accounting fees, appraisers' fees, brokerage costs, executors' commissions, and attorneys' fees) that is included in the decedent's gross estate. These vary widely and depend on location, the size of the estate, and the complexity of the administration problems involved.

  1. Debts & Taxes

Debts – including mortgages and other liens – that were personal obligations of the decedent at the time of death are deductible. Certain taxes unpaid at the time of the decedent's death are considered debts. Three common deductible taxes are:

  • Income taxes unpaid, but reportable for some tax period prior to the decedent's death;

  • Gift taxes that were not paid on gifts the decedent made sometime prior to death; and

  • Property taxes that accrued, but remained unpaid at the time of the decedent's death.

  1. Casualty & Theft Losses

Casualty and theft losses incurred by the estate are deductible if the loss arose from fire, storm, shipwreck (or other casualty), or theft. To be deductible, the loss must have occurred during the time the estate was in the process of settlement, and before it was closed. At the executor's option, losses may be deducted from either the estate tax return, or the estate's income tax return. Typically, they will be taken on the return which produces the highest deduction.

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