The “Estate”
The term “estate” has different meanings depending on the context. Perhaps the most basic definition is the total amount of property one owns or controls. As concerns estate planning, the definition usually refers to the property one owns or controls at the time of death. Estate planners focus on this concept of the total estate — and how to arrange for its ultimate distribution.
How Property in the Total Estate Is Transferred
Property in the estateholder’s total estate may be transferred upon death in one of several ways:
Three Definitions of “Estate”
These three methods of transfer give rise to three distinct definitions of “estate” that estate planners use:
Probate Estate vs. Taxable Estate
The distinction between the probate estate and the taxable estate is critical. Property transferred by law or by contract — such as jointly held assets or life insurance death benefits — avoids probate entirely. However, those same assets may still be included in the taxable estate if the estateholder held sufficient incidents of ownership or control over them at death.
Estate planners who successfully reduce the probate estate by using will substitutes (joint ownership, beneficiary designations, trusts) do not necessarily reduce the taxable estate. Minimizing the taxable estate requires additional strategies, which are discussed later in this module.
The Federal Estate Tax
The federal government imposes an estate tax on taxable estates exceeding a threshold exemption amount. A series of legislative changes — beginning with EGTRRA (2001), and most recently the Tax Cuts and Jobs Act (TCJA, 2017) — has significantly elevated that exemption. For 2024, the federal estate tax exemption is $13.61 million per person ($27.22 million for a married couple using portability). The top estate tax rate remains 40% on taxable amounts above the exemption.
Two Major Objectives of Estate Planning
In summary, two major objectives of many estate plans are:
1. Avoid the costs and delays of probate — by transferring as much property as possible through will substitutes (joint ownership, beneficiary designations, trusts, and pay-on-death arrangements).
2. Minimize federal estate tax liability — through lifetime gifting, irrevocable trusts, marital deductions, charitable transfers, and other strategies designed to reduce the taxable estate.
These financial objectives must always be integrated with the estateholder’s non-financial goals — family relationships, charitable intentions, and personal values — to design a plan that truly fulfills the client’s wishes.