Gross Estate: FMV at Death and All Included Property

Federal estate planners and family executors are working with a higher federal exemption in 2025 and a renewed focus on what, exactly, counts in a person’s gross estate. At issue is how the fair market value of assets on the date of death—or on a later alternate valuation date—feeds into the federal estate tax calculation, who must file a federal return, and how special asset types are treated. The Internal Revenue Code sets out a broad net for inclusion, and it matters because estates that cross the filing threshold must report detailed values and may owe tax after deductions and credits are applied.

Policy definition and scope

Under federal law, the gross estate is the total fair market value (FMV) of all property in which the decedent held an interest at death. By default, assets are valued on the date of death. An executor may elect an alternate valuation date six months later, but only if doing so lowers both the gross estate and the resulting estate tax.

This baseline covers:

• Real property (homes, farms)
• Cash and brokerage accounts
• Personal items and collectibles
• Business interests
• Certain digital assets

It also sweeps in categories people often overlook during planning.

Key inclusion rules:

• Transfers made during life where the decedent retained interests—life estates, reversionary interests, or the right to revoke—are generally included.
• Transfers that take effect at death, such as pay-on-death arrangements, are included.
• Life insurance proceeds are part of the gross estate if the decedent owned the policy or if proceeds are payable to the estate.
• Certain gifts made within three years of death are pulled back into the calculation, especially when tied to life insurance or retained interests.

Joint ownership and spousal interests:

• For joint tenancies with rights of survivorship and tenancies by the entirety, the includible portion typically depends on the decedent’s contribution toward the property.
• Community property rules apply as defined by state law.
• Property subject to a general power of appointment is included, as is Qualified Terminable Interest Property (QTIP) for which a QTIP election was made.
• Dower, curtesy, or similar statutory spousal shares may also be counted under state law.

According to analysis by VisaVerge.com, families are most surprised by two rules: the pullback of certain lifetime gifts made within three years of death, and the inclusion of life insurance when the decedent owned incidents of ownership in the policy. Both can add large values to the gross estate, even when the rest of the estate seems modest.

Valuation rules and filing thresholds

Valuation drives the final tax picture. Fair market value is defined as what a willing buyer would pay and a willing seller would accept when both have reasonable knowledge and neither is under compulsion. This standard underpins appraisals for homes, farms, closely held businesses, and collectibles.

• Some assets are simple to price; others require professional appraisals and careful documentation.
• Treasury rules at 26 CFR § 20.2031-1 provide detailed valuation guidance.
• Inclusion rules appear in IRC §§ 2033–2044.

Deductions, credits, and the exemption:

• From the gross estate, the law allows deductions to reach a taxable estate. Typical deductions include:
  • Mortgages and other debts
  • Funeral expenses
  • Estate administration costs
  • Transfers to a surviving spouse or to charity
• Lifetime taxable gifts made after 1976 are added back for rate-setting.
• The unified credit (federal estate tax exemption) then reduces or eliminates tax due.
• For 2025, the federal exemption is $13,610,000 per person.

Filing and forms:

• Estates below the filing threshold generally do not need to file a federal estate tax return, though some executors file to elect portability.
• The federal return—Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return—captures the gross estate, deductions, and credits in detail.
• Executors should consult the IRS for current instructions:
  • Official guidance on estate tax requirements: Estate Tax
  • Official resource for Form 706: About Form 706

State-level considerations:

• Several states levy separate estate or inheritance taxes with lower exemptions and different schedules.
• An estate may owe no federal estate tax but still owe a state levy.
• Executors working across state lines must verify current state statutes and filing triggers.

Practical valuation advice:

• Estates near the exemption level often seek professional appraisals for business interests, unique real property, or art/collectibles to avoid IRS challenges.
• The alternate valuation date election can help in a declining market—but:
  • It is all-or-nothing (cannot apply to just one asset class).
  • It affects beneficiaries’ basis, so families weigh tax and post-inheritance planning before electing.

Practical effects for families and executors

The central questions for families are: which assets count, how are they valued, and when is paperwork required? Below are common scenarios and practical steps.

Common situations

1. Home jointly owned by spouses (tenancy by the entirety)
   • Only the decedent’s includible portion goes into the gross estate, typically tied to contribution rules and state law.
   • A surviving spouse may receive a marital deduction, reducing the taxable estate.
2. Revocable trust funded during life
   • Assets in a revocable trust are included in the gross estate because the decedent retained the power to revoke.
   • Revocable trusts may shape probate but do not remove assets for estate tax purposes.
3. Life insurance policy owned by the decedent
   • The death benefit is included if the decedent owned the policy or retained incidents of ownership.
   • Proceeds payable to the estate are included.
   • Transfers within three years of death may draw proceeds back into the gross estate.

Executor checklist and best practices

• Build a clear inventory early:
  • List all accounts and property interests at death, noting title form and the decedent’s contribution for jointly held property.
  • Identify transfers where the decedent kept a life interest or power to revoke.
  • Flag life insurance policies; request carrier confirmations on ownership and beneficiary status.
  • Review community property status if applicable.
• For hard-to-price assets, retain appraisers who follow IRS standards for fair market value.
• Document everything used on Form 706:
  • Bank and brokerage statements for date-of-death values
  • Real estate appraisals using comparable sales and local adjustments
  • Business valuations with support for earnings, discount rates, and any control or marketability discounts
  • Records of debts, last illness costs, funeral bills, and administration expenses

Gifts and their effect

• Lifetime gifts remove assets from the decedent’s property at death, but:
  • Taxable post-1976 gifts are added back into the estate tax calculation for rate-setting.
  • Certain gifts within three years of death—especially those tied to life insurance or retained interests—are included in the gross estate itself.
• Gifts can change the math but rarely eliminate the issue by themselves.

Cross-border and timing issues

• Many families have assets and insurance ownership across jurisdictions, but federal inclusion rules still apply for U.S. citizens and residents.
• Executors should consider how foreign-held assets will be valued, titled, and documented.
• The estate tax return is due nine months after death, with an extension available.
• The alternate valuation date election must be made on a timely filed return.
• Estates below the filing threshold may still file to elect portability so a surviving spouse can use any unused exemption.

Legal backbone and final takeaways

The legal rules sit in the Internal Revenue Code and Treasury Regulations:

• IRC Sections 2033–2044: spell out inclusions in the gross estate (retained life estates, revocable transfers, property taking effect at death, life insurance, joint interests, general powers of appointment, QTIP).
• Treasury Regulations 26 CFR § 20.2031-1: detail valuation rules anchoring fair market value.
• Form 706 and its instructions tie the rules together for reporting, beginning with gross estate schedules and ending with deductions, credits, and the final tax.

Key takeaway: With the 2025 exemption at $13,610,000, most estates will not owe federal estate tax, but careful work around gross estate rules protects families from avoidable surprises. A will and revocable trust can shape probate, but they don’t remove assets from the gross estate if the decedent kept control. Review insurance ownership, beneficiary designations, and powers of appointment well before later life.

Practical recommendations for executors and families:

• Inventory and document early.
• Use appraisers experienced with IRS standards for complex assets.
• Confirm insurance ownership and beneficiaries with carriers.
• Consider filing to elect portability when appropriate.
• Consult counsel or tax professionals when estates approach exemption levels or involve foreign assets.

These steps help reduce stress, limit disputes, and ensure accurate reporting on Form 706 while keeping families informed about the real drivers of estate tax exposure.