What Is an Adjusted Gross Estate?

Malcolm Tatum
Malcolm Tatum

An adjusted gross estate is a type of estate situation in which certain types of costs and expenses have been identified and subtracted from the worth of the estate before any type of estate taxes are calculated and paid to the appropriate tax agency. This approach takes into consideration all types of assets and liabilities that compose the estate, identifying expenses of the deceased that are allowed in accordance with current tax laws, then deducting those allowable expenses from the worth of that estate. The end result is an adjusted gross value that can be used as the basis for determining the amount of taxes that are owed as the remainder of that estate is transferred to a beneficiary.

Man climbing a rope
Man climbing a rope

The concept of an adjusted gross estate is common in many nations. While the scope of obligations that may be subtracted from the worth of the estate will vary somewhat based on the tax laws that apply, most of those laws do allow for any debts owed by the owner at the time of death to be legitimate deductions. In addition, any administrative expenses that are connected with the settlement of the estate can also be deducted before determining the tax obligation. This means that all expenses incurred by the executor of the estate are deducted from the value before calculating the estate taxes.

It is important to note that with an adjusted gross estate, the value basically represents what the owner actually owned at the time of his or her death. In the case of a mortgage, the estate only owns whatever portion of the mortgage was already settled. Any remaining balance owed to the mortgage company is considered debt and will be included in the obligations that are subtracted from the gross value of the holdings. This is sometimes offset by any other assets the owner had pledged for use in settling the mortgage debt in the event of his or her death.

One of the benefits of the adjusted gross estate model is that the beneficiary is not burdened by paying taxes based on a figure that is well below the value of the assets he or she inherits. Since assets held by the estate are used to settle all outstanding debts, only the remainder is considered taxable. That amount of taxes owed on an adjusted gross estate can often be settled by selling some of the inherited estate’s assets, allowing the beneficiary to make use of any assets that remain.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register: