What Is Your Estate? Probate Assets, Debts, and Estate Tax

Your estate is everything you own minus everything you owe at the moment you die. Under federal law it includes all your property, real and personal, tangible and intangible, wherever it sits, valued as of the date of death.¹ That is a wider net than most people picture. It captures the house and the checking account, but also retirement plans, life insurance you control, business interests, cryptocurrency, and the debts your family will have to settle. For 2026, estates worth more than $15 million also face federal estate tax, so knowing what falls inside your estate matters both for who inherits what and for whether a tax bill is coming.²

What Counts as Part of Your Estate

Federal law counts the value of every interest you hold at death as part of your gross estate.³ In practice that means:

Real property: land, your home, rentals, vacation places, and commercial buildings you own or co-own.
Tangible personal property: vehicles, jewelry, artwork, furniture, and collectibles.
Financial accounts: checking and savings, CDs, brokerage accounts, stocks, bonds, and mutual funds.
Retirement accounts: 401(k)s, IRAs, pensions, and similar employer-sponsored plans.
Life insurance, if the policy is payable to your estate or if you held any “incidents of ownership” at death, meaning you could change beneficiaries, borrow against it, or cancel it.⁴
Business interests: shares in partnerships, LLCs, S corporations, and sole proprietorships.
Intellectual property: copyrights, patents, trademarks, and royalty streams.
Digital assets: cryptocurrency, domain names, digital media libraries, and online accounts with monetary value.

The life insurance rule catches people out. If you own a $1 million policy and name your child as the beneficiary, the money goes straight to your child, but the full $1 million is still counted in your gross estate for tax purposes because you held ownership rights over the policy.⁴ The payout skips probate; the tax does not.

Debts Come Out Before Anyone Inherits

Your estate is not just what you own. Mortgages, credit card balances, personal and car loans, unpaid medical bills, and back taxes are all part of the picture, and they get paid out of estate assets before beneficiaries receive anything.

Every state sets its own priority order, but the general pattern is similar: funeral and burial expenses first, then administration costs like court fees, attorney fees, and executor compensation, then secured debts like mortgages, then tax obligations, and finally unsecured debts like credit cards and medical bills. If the estate cannot cover all of it, the estate is insolvent. Lower-priority creditors get less or nothing, and beneficiaries receive nothing until the higher-priority debts are satisfied.

A common fear is that children inherit their parents’ debt. In most cases they do not. When someone dies owing more than the estate is worth, the unpaid debts generally die with them; creditors can claim against the estate but cannot pursue heirs personally. The exceptions matter: you can be liable if you co-signed the loan, held a true joint account (an authorized user on a credit card is not the same thing), or live in a community property state, where a surviving spouse may have to use jointly held property to pay the deceased spouse’s debts.⁵

Probate Assets vs. Non-Probate Assets

Not every asset in your estate travels the same route to your beneficiaries. This is where a lot of confusion sits, so it is worth pulling apart.

Probate assets are held solely in your name with no beneficiary designation and no survivorship arrangement.⁶ A court oversees their distribution under your will, or under state intestacy law if you did not leave one. Think of a house titled only in your name, a solo bank account with no payable-on-death designation, your car, and your personal belongings.

Non-probate assets transfer directly to a named beneficiary or a surviving owner without court involvement, either by operation of law or by contract.⁷ Your will does not control them. The main categories:

Jointly held property with survivorship rights, including bank accounts, brokerage accounts, and real estate held as joint tenants.
Accounts with named beneficiaries: life insurance, 401(k)s, IRAs, and annuities.
Payable-on-death (POD) bank accounts and transfer-on-death (TOD) investment accounts.
Assets held in a living trust, which pass according to the trust’s terms.

Here is the part that trips people up: non-probate assets still count as part of your gross estate for tax purposes. A $500,000 life insurance policy with a named beneficiary skips probate entirely, but the IRS still includes it when working out whether your estate owes tax. Probate is about the transfer process. The tax question is separate.

How Ownership Structure Changes What’s in Your Estate

How you hold title to property affects both what falls into your estate and whether it goes through probate. The same asset can be treated very differently depending on the arrangement.

Joint Tenancy With Right of Survivorship

When two or more people own property as joint tenants, a deceased owner’s share automatically passes to the surviving owners outside of probate. A married couple who owns a home this way means the surviving spouse becomes sole owner the moment the other spouse dies. For estate tax, though, the IRS generally includes the full value of jointly held property in the first owner’s estate unless the surviving owner can prove they contributed to the purchase.

Tenancy in Common

Tenants in common each own a distinct share, and those shares do not have to be equal. When one tenant in common dies, their share does not pass automatically to the others. It becomes part of the deceased owner’s estate, passes under the will or intestacy law, and goes through probate.

Community Property

Nine states, plus some opt-in jurisdictions, use a community property system for married couples. Property earned or acquired during the marriage is generally owned 50/50, regardless of whose name is on the title. When one spouse dies, only their half is part of the estate; the surviving spouse already owns the other half outright. Property one spouse owned before the marriage, or received as a gift or inheritance during it, is usually separate property and belongs entirely to that spouse’s estate.

How Your Estate Is Valued

Valuation starts with fair market value: the price a willing buyer and a willing seller would agree on, neither under pressure, both reasonably informed. The IRS applies this standard to every asset.

The default valuation date is the date of death. An executor can elect an alternate valuation date six months after death, but only if doing so reduces both the gross estate value and the total estate tax owed.⁸ The election exists to protect estates when values drop sharply after death. If values went up during those six months, the alternate date is not available.

Some assets are easy to value. A bank balance or publicly traded stock has an obvious number. Others need a professional appraisal: real estate, closely held businesses, valuable art, and collectibles. For unlisted stock and securities that do not trade on a public exchange, the IRS requires consideration of comparable companies in the same line of business, among other factors.¹ Bad valuations can trigger underpayment penalties or cause the family to overpay, so appraisals are worth the cost for anything beyond simple financial accounts.

When Federal Estate Tax Applies

Federal estate tax applies only to the portion of your estate above the basic exclusion. For 2026 that exclusion is $15 million per individual, so a single person can pass up to $15 million to heirs with no federal estate tax.² Anything above the threshold is taxed at rates up to 40%.

Property that passes to a surviving spouse qualifies for an unlimited marital deduction, subtracted from the gross estate before any tax is calculated.⁹ You can leave your entire estate to a spouse with zero federal estate tax, regardless of size. The tax question shifts to when that spouse later dies.

Portability helps with that shift. If the first spouse to die did not use their full $15 million exclusion, the surviving spouse can claim the leftover amount through a portability election, giving a married couple up to $30 million in combined exclusion.¹⁰ The catch: the executor has to file a federal estate tax return (Form 706) for the first spouse’s estate to make the election, even if that estate is well below the filing threshold. Miss the deadline and the unused exclusion is gone.

Form 706 is due nine months after the date of death, with an automatic six-month extension available if requested before the original deadline.¹¹ Estates below the exclusion do not need to file unless they are electing portability. The taxable estate, which is the number the tax is actually calculated on, is the gross estate minus allowable deductions: debts, funeral expenses, charitable gifts, and the marital deduction.¹²

If You Die Without a Will

When someone dies without a valid will, their probate assets are distributed under the intestacy laws of the state where they lived.¹³ These laws follow a rigid priority order: surviving spouse and children first, then parents, siblings, and more distant relatives. If no relatives can be found, the assets go to the state.

Intestacy laws apply only to probate assets. Non-probate assets, including jointly held property, retirement accounts with beneficiary designations, and trust assets, transfer according to their own rules whether or not there is a will. That is why keeping beneficiary designations current matters so much. A 401(k) beneficiary form you filled out twenty years ago naming an ex-spouse will override whatever your current will says.

1
Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate
2
Internal Revenue Service. What’s New – Estate and Gift Tax
3
Office of the Law Revision Counsel. 26 USC 2033 – Property in Which the Decedent Had an Interest
4
Office of the Law Revision Counsel. 26 USC 2042 – Proceeds of Life Insurance
5
Consumer Financial Protection Bureau. Does a Person’s Debt Go Away When They Die?
6
Legal Information Institute. Probate Assets
7
Legal Information Institute. Non-Probate Assets
8
Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation
9
Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse
10
Internal Revenue Service. Frequently Asked Questions on Estate Taxes
11
Internal Revenue Service. Filing Estate and Gift Tax Returns
12
Office of the Law Revision Counsel. 26 USC 2051 – Definition of Taxable Estate
13
Legal Information Institute. Intestate Succession