Reduction of the Gross Estate
October 2025
October marks the beginning of the fourth quarter for the year, and the time when many start to think about tax planning to be completed before year-end.
Gift planning is particularly potent for those with large estates.
Reduction of the Gross Estate via Gift
The estate tax is imposed on the transfer of a taxable estate at a 40% rate. I.R.C. §§ 2001(a) & (c). For every $1 included in the gross estate, $0.40 is potentially due to Treasury for estate tax.
EXAMPLE: A owns stocks, bonds, and real property with a value that exceeds the basic exclusion amount, including stock with a value of $5 million. A makes no plans with respect to the stock. In 2025, A dies when the value of the stock increases to $10 million. The stock is included in the gross estate. I.R.C. § 2033. Estate tax of $4 million (10,000,000 x 0.40 = 4,000,000) is imposed on the transfer of the stock. I.R.C. §§ 2001(a) & (c).
The determination of whether property is includible in the gross estate has significant tax implications for those with large estates.
The gross estate generally includes the value of all property to the extent of the decedent’s interest therein on the date of death. I.R.C. § 2033.
Fortunately, simple and straightforward planning is available to reduce the gross estate.
A person can reduce his or her gross estate by completing a gift during life.
EXAMPLE: A owns stocks, bonds, and real property with a value that exceeds the basic exclusion amount, including stock with a value of $5 million. A creates an irrevocable trust for A’s children, and gifts the stock to the trust. In 2025, A dies when the value of the stock increases to $10 million. The stock is not included in the gross estate. I.R.C. § 2033; I.R.C. § 2036; I.R.C. § 2038. No estate tax is imposed on the stock.
With proper planning, property gifted to a trust designed to be excluded from the gross estate should not be subject to estate tax.
