Transfer Costs

Transfer costs are all the taxes and expenses involved with "transferring" an estate to heirs. In addition to estate taxes, other expenses are due when an individual dies and the estate is settled.

These additional expenses may include:

Debts
State Death Taxes
Funeral Expenses
Probate Fees
Legal & Administrative Fees
Income Taxes

All of the above types of expenses are generally categorized as transfer costs – fees and expenses associated with transferring the estate to the heirs. A percentage of the estate is generally used for the purpose of estimating these costs. This percentage is applied to distributions subject to taxation (distributions not going to the surviving spouse). Although the actual percentage might reach 10 or 11%, the most commonly used percentage is 5%; most people believe they can do a satisfactory job of planning during life to minimize excessive expenses at death.

Transfer costs such as the ones listed above are considered an estate expense and, as such, are deductible for estate purposes. The percentage of the estate, in dollar terms, is deducted from the current net estate before calculating the estimated federal estate tax.

Section 2011: Credit for State Death Taxes

Section 2011 allows a credit for the estate death taxes paid based on the taxable estate. The only state death taxes that should be considered additional "transfer costs" are the state death taxes paid that exceed the federal credit.