How are estate taxes determined?

The determination of estate taxes is based on the total value of a deceased person's estate before distribution. This means that all assets owned by the deceased at the time of death, including real estate, bank accounts, investments, and personal property, are added together to calculate the gross estate value.

Once the gross estate is determined, deductions can be applied for debts, funeral expenses, and other allowable deductions to arrive at the taxable estate. The applicable estate tax rate is then applied to this taxable estate, leading to the assessment of the estate tax owed. The focus on the total value prior to any distribution ensures that the tax reflects the entire wealth amassed by the deceased, rather than factors such as the heirs' income or potential future earnings.

This method of assessing taxes is distinct from options that consider heirs' income or future estimations, which do not apply in the calculation of estate taxes. Additionally, the flat rate approach does not account for the value of the estate, which can vary significantly from one estate to another. Thus, option B correctly captures the process of how estate taxes are determined.