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Key Considerations for Your Taxable Estate By Guy Hockerman, CPA, CFP ® , Senior Vice President and Financial Planning Manager, Commerce Trust Understanding the basics of your taxable estate is critical to allocating wealth in a way that aligns with your goals. What assets are included in your gross estate, which deductions can be applied, and how taxable gifts impact how much estate and gift tax is owed are important considerations for preserving wealth and minimizing tax liabilities for your beneficiaries. What assets are included in my taxable estate? The IRS considers everything you own to be your "gross estate" and will calculate your estate tax liability based on the value of your gross estate, including, depending on the type of asset, part or all of jointly owned assets, as of the date of death. Assets like real estate, investments, cash, life insurance proceeds, trusts, annuities, valuable personal property, and business interests are included and assessed at fair market value. The amount of federal estate tax owed is calculated using Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return which captures all relevant elements of your estate in one document. Which federal estate tax deductions can be applied? Federal estate tax deductions can lower the value of your gross estate, which may lower how much estate tax is due. Common deductions include funeral expenses paid by the estate, estate administration expenses, certain outstanding debts, charitable bequests, and the value of property that passes to a surviving spouse. For residents of states that levy estate taxes at the state level, state estate taxes paid or anticipated to be paid are also deductible. How do taxable gifts impact my estate taxes? Taxable gifts made over your lifetime can potentially increase your estate tax liability. Taxable gifts are recognized when cash or an asset that is greater in value than the annual gift tax exclusion amount ($19,000 per individual in 2025) is transferred to someone other than your spouse. Any gift over the annual gift tax exclusion amount requires submitting Form 709, a gift tax return, to the IRS. If you still have estate and gift tax exemption remaining, there will be no tax paid but Form 709 will capture the use of that exemption. What federal tax exemptions can I use to lower my estate taxes? The federal estate and gift tax exemption combines the cumulative taxable gifts made over your lifetime and the value of your taxable estate to determine how much of the exemption amount is used to transfer assets tax-free. Any sum over the exemption amount is subject to a progressive tax that can quickly rise to a 40% maximum estate tax rate. The federal "generation-skipping transfer" (GST) tax exemption allows gifts given to a "skip person," someone two or more generations after the donor's generation, to transfer tax-free up to a certain amount. This exemption is separate from the federal estate and gift tax exemption, but both exemptions are based on cumulative wealth transfers over your entire life such as taxable gifts given during your life and the transfer of your estate at death. *Commerce Trust does not provide tax advice to customers unless engaged to do so. The opinions and other information in the commentary are provided as of January 16, 2025. This summary is intended to provide general information only, and may be of value to the reader and audience. This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Commerce Trust is a division of Commerce Bank. Investment Products: Not FDIC Insured | May Lose Value | No Bank Guarantee NAVIGATE ESTATE TAX COMPLEXITY WITH COMMERCE TRUST Commerce Trust uses a holistic and personalized approach to estate planning, partnering with your estate planning attorney or tax advisor when needed to ensure your estate plan is tailored to your goals. Contact Commerce Trust today at www.commercetrustcompany.com/estateplanning to initiate estate planning discussions and learn how our financial planning, investment portfolio management, trust administration, and tax management * professionals work together to develop a comprehensive estate plan under one roof.