How are estate taxes primarily determined?

The determination of estate taxes primarily hinges on the fair market value of the decedent's estate at the time of death, less applicable deductions. This method is founded on the principle that the estate's value reflects the total assets owned by the deceased, including real estate, investments, and personal property. After assessing this gross value, certain deductions may apply, such as debts owed by the estate, funeral expenses, and specific exemptions provided under tax laws.

This approach ensures that the estate taxes are aligned with the actual value of the estate, providing a fair basis for taxation. By focusing on the fair market value at the death of the decedent, the calculation captures the true financial position of the estate, rather than relying on income or the number of heirs, which could lead to discrepancies and inequities in taxation.

Thus, the option that states estate taxes are calculated from the fair market value of the decedent's estate at the time of death, minus deductions, accurately reflects the fundamental methodology used in determining estate taxes.