Estates

• Estates are usually composed of liquid assets such as checking accounts as well as real estate, other property, stocks and bonds. If the value of the estate is more than $5 million at the time of publication, the survivors must pay estate taxes, although the IRS allows several deductions. If these deductions decrease the value of the estate below $5 million, no taxes have to be paid.
  
  

Allowable Deductions

• The IRS allows you to deduct most end-of-life and funeral expenses on the estate's tax return. These include all funeral and burial expenses, outstanding medical bills, outstanding personal bills such as mortgage and credit cards, and administration costs such as that of the probate attorney.
  
  

Exception

• If the entire estate is left to a surviving spouse, the spouse will not have to pay estate taxes, regardless of the size of the estate. If pieces of the estate are left to children or other heirs, the estate tax must be paid.
  
  

Record Keeping

• If you're the executor of the estate, keep all paperwork and receipts relating to any estate deductions. This includes any costs associated with the funeral, including honoraria given to people participating in the service. Keep copies of all medical and personal bills, as well as refunds paid to the estate, such as medical insurance overpayments or security deposits from utilities.