Taxes

Estate tax planning

Calculate your estate tax liability

Estate tax planning is very important to preserving your wealth for future generations. Knowing your potential estate tax liability is a great place to start your estate tax plan. Use this calculator to project the value of your estate, and the associated estate tax, for the next ten years. This calculator uses the rules passed into law as part of the "Tax Hike Prevention Act of 2010." For 2011, this law reduces the maximum estate tax to 35% with the first $5,000,000 of an estate not subject to the tax. The new estate tax expires at the end of 2012 and without additional congressional action will revert back to the rules that were in place in 2001. Please be aware that certain estate planning documents, which are beyond the scope of this calculator, may be necessary in order for assets to be distributed according to your wishes.

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Definitions

Estate tax calculation: In 2001, new rules were passed that reduced estate taxes over the next few years and completely eliminated them in 2010. Unfortunately, the reform was not permanent and expired in 2010. In 2010 the "Tax Hike Prevention Act of 2010" created a new $5 million exemption (no tax on estates smaller then $5 million) and a top estate tax rate of 35%. Similar to the original reform passed in 2001, this law is not permanent. It is will expire at the end of 2012. At that point we return to the 2001 exemption of $1 million and a top rate of 60%. Although more changes are expected, this calculator assumes we revert to the old rules, rates and exemptions in 2013 and beyond.

The new law also allows an unused spousal exemption to be used by a surviving spouse. For example, if a married couple has an estate of $10 Million, and the first spouse uses $3 million of their exemption when they die, the second spouse is able to pass on $7 million a the time of their death without incurring any estate tax. How this rule is applied to current widowers (subject to previously lower exemption amounts) has not been clearly defined. This calculator does not include calculate the impact of an unused spousal exemption.
Exemptions and Maximum Tax Rates: In 2011 the estate tax exemption is $5 million per spouse. Amounts exeeding the exemption amount are taxed at a rate of 35%. The exemption amount is indexed for inflation for 2012. Your exemption is reduced if you have used any gift exemption amount.
The table below is used for years 2013 and beyond when rates and the exemption amounts return to their 2001 levels.
Marital status: Choose your marital status. Choosing "Married" also allows you to enter an amount to transfer to your surviving spouse at the time of your death. Choosing "Single" disables the transfer to spouse.
Transfer to spouse: Married couples never have to pay estate taxes on assets transferred to a surviving spouse. In addition, any assets transferred to a surviving spouse don't count against the estate tax exemption. This calculator allows married couples to indicate how much of their estate will be transferred directly to a spouse. This can be an excellent way to reduce your current estate tax liability, although it may mean a larger estate tax bill in the future.
Used gift exemption: Large gifts distributed during your lifetime can reduce your estate tax exemption when you die. This can increase your estate tax bill. The tax code was designed this way to prevent wealthy individuals from giving away their entire estate before they die, thus escaping estate taxes. If you have never given a gift over $10,000, other than gifts to non-profit organizations or your spouse, then your used gift exemption amount is $0. In future years, the limits are indexed to inflation in $1,000 increments.
Annual asset growth:: Annual rate you expect your total assets to grow or shrink. Note that this is the average you expect your total asset balance to change, not the interest rate you earn on your assets. If your total asset balance is expected to shrink, enter a negative amount. If your total asset balance is expected to grow, enter a positive amount.
Annual debt growth:: Annual rate you expect your total debt to grow or shrink. Note that this is the average you expect your total debt balance to change, not the interest rate you pay on your debts. If your total debt balance is expected to shrink, enter a negative amount. If your total debt balance is expected to grow, enter a positive amount.
Charitable contributions: Giving to charitable organizations at your death can reduce your estate taxes. For each dollar that you give away in this manner, your taxable estate is reduced by one dollar.
Life insurance: Section 2042 of the Internal Revenue Code includes the value of life insurance proceeds insuring your life in your gross estate if the proceeds are payable: (1) to your estate, either directly or indirectly; or (2) to named beneficiaries, if you possessed any "incidents of ownership" in the policy at the time of your death. If either of these conditions are present enter the face amount in the assets page under the heading "Life Insurance Policies".
Note: If you own a life insurance policy (with a cash value) that insures someone else's life, please enter the cash value in the assets page under the heading "Investments." The cash value increases at your projected rate of return (your asset growth rate).

Estate Tax Rates Table 2013 and Beyond
Estate Amount Exceeding:	Up to:	Is taxed at a rate of:
$1,000,000	$1,250,000	41%
$1,250,000	$1,500,000	43%
$1,500,000	$2,000,000	45%
$2,000,000	$2,500,000	49%
$2,500,000	$3,000,000	50%
$3,000,000	$10,000,000	55%
$10,000,000+	$17,184,000	60%
$17,184,000+		55%

Gift Exemption Amounts
Year	Gift Exemption (Single Person)	Gift Exemption (Married Couple)
2000 and prior	$10,000	$20,000
2001 - 2005	$11,000	$22,000
2006 - 2008	$12,000	$24,000
2009 - 2011	$13,000	$26,000
2012 and beyond	$13,000 plus inflation adjustment	$26,000 plus inflation adjustment

Asset definitions

Home: Current value of your home. This should be as close as possible to the actual market value of your home. If you have owned your home for a number of years, the current market value could be significantly higher than your original purchase price.
Other real estate: The value of any other real estate you may own. Include second homes, undeveloped land, rental property or any commercial buildings you may have an interest in. As with your home, use the actual market value of this real estate.
Automobiles: This is the total value of all automobiles that you own. Do not include any leased vehicles.
Other vehicles: If you own any other vehicles, such as RVs, campers or collectibles, enter them here.
Jewelry: The value of any jewelry, gems or precious metals such as gold. If you have owned these items for a number of years, they may have appreciated in price, remember to use the current market value.
Household items: The value of your household goods and items. This would include items such as furniture, home electronics, silverware, etc.
Checking and savings: The current total balance of your checking and savings accounts.
Retirement accounts: The current total balance of your retirement accounts. This should include IRAs, 401(k) savings, SEP IRAs, variable annuities and any other retirement savings you may have.
Savings bonds: If you own any Savings Bonds, enter the total here.
Bonds: If you own any Treasury, municipal, or commercial bonds, enter the total here.
Mutual funds: If you own any mutual funds, enter the total here. Do not include any mutual funds that are in your retirement accounts, they were already included in the "Retirement accounts" line.
Stocks: If you own any individual stocks, enter the total here. Again, do not include any stocks that are held in a retirement account.
Cash value of life insurance: If you own a life insurance policy (with a cash value) that insures someone else's life, please enter the cash value in the assets page under the heading "Investments." The cash value increases at your projected rate of return (your asset growth rate). Do not include the cash value of life insurance policies insuring your life in this field.
Cash: If you have any other cash, enter the total here.
Other: If you have any other assets of value, you can enter the total here.

Liabilities Definitions

Home mortgage principal: This is the current principal balance remaining on your mortgage. This is the amount that you would have to pay to own your home free and clear.
Other mortgage principal: This is the current principal balance for any other real estate mortgages you may have. This includes mortgages on rental property, undeveloped land, commercial property or any other real estate.
Auto loans: Total amount you currently have outstanding on your auto loans.
Student loans: Total amount, if any, that you currently owe in college or student loans. You should enter the total outstanding even if these loans are currently in deferment.
Other loans: Total amount, if any, of any other loans you may have.
Credit card debt: Your total credit card debt.

Expenses at death

Funeral expenses: Your total expected funeral expenses. Money used from your estate to pay for funeral expenses is not subject to estate taxes.
Probate percent: Percent of your remaining estate that will be paid in probate costs. This varies from state to state. Money used to pay probate costs is not subject to estate taxes.

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

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