Estate Tax Planning

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. As of 2010, the estate tax has been repealed, but it will reappear starting in 2011. Use this calculator to project the value of your estate, and the associated estate tax, for the next ten years. 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. It is very important to note that it is very likely that a congressional change will be made in 2010 that could greatly impact estate taxes, and it could possibily be retroactive to the beginning of 2010.

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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 is not yet permanent. In 2011, unless a new estate tax bill is passed by Congress, we revert back to the old rules that were in effect in 2001. The estate tax rate table remained the same for the entire period, however the maximum tax rate was gradually reduced from 60% to 45%. In addition, the Estate Tax Exemption Increased to $3.5 million in 2009. This calculator assumes we revert to the old rules, rates and exemptions in 2011 and beyond.

It is very important to note that it is very likely that a congressional change will be made in 2010 that could greatly impact estate taxes, and it could possibily be retroactive to the beginning of 2010.

Exemptions and Maximum Tax Rates
There is currently no tax for estates in 2010 regardless of size. The table below is used for years 2011and beyond when rates and the exemption amounts return to their 2001 levels. For years 2011 and beyond there is no estate tax on any amount below your exemption (unless you have a used gift exemption).

The maximum estate tax rates and exemptions found in the Exemptions and Maximum Tax Rates Table must be used to complete any estate tax calculation.

Estate Tax Rates Table
Subject to Exemptions and Maximum Tax Rates Table
Estate Amount Exceeding:Up to:Is taxed at a rate of:
$1,000,000$1,250,00041%
$1,250,000$1,500,00043%
$1,500,000$2,000,00045%
$2,000,000$2,500,00049%
$2,500,000$3,000,00050%
$3,000,000$10,000,00055%
$10,000,000+$17,184,00060%
$17,184,000+ 55%

Exemptions and Maximum Tax Rates
YearEstate Tax ExemptionHighest Rate
2003$1 million49%
2004$1.5 million48%
2005$1.5 million47%
2006$2 million46%
2007$2 million45%
2008$2 million45%
2009$3.5 million45%
2010N/A (taxes eliminated)0%
2011$1 million60%

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. For 2009, the gift limit is $13,000 for singles and $26,000 for married couples. For 2006-2008 the gift limit was $12,000 for singles and $24,000 for married couples. The gift limit was $11,000 for singles and $22,000 for married couples from 2001 through 2005. In years prior to 2001, gifts limits were $10,000 for singles and $20,000 for married couples. In future years, the limits are indexed to inflation in $1,000 increments.

Gift Exemption Amounts
YearGift 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 - 2010$13,000$26,000
2011 and beyond$13,000 plus inflation adjustment$26,000 plus inflation adjustment

If you have given large gifts, you can calculate your used gift exemption as follows:

  1. If you are single, determine if you have ever given over $10,000 in gifts to any individual recipient in a single year prior to 2001, over $11,000 from 2001 to 2005 and over $12,000 in 2006, 2007 and 2008. If you are married, determine if the combined total of gifts to any individual recipient, between you and your spouse, exceeds double the limit for a single person.

  2. For each recipient and year where you exceeded these limit, calculate the excess.

  3. The total excesses from the previous step is your "Used gift exemption."

  4. You do not need to include amounts that were used to pay for tuition or medical costs as long as they were paid directly to the school or medical organization.

    For example:
    You are single and in 2001, gave your son $13,000 and your daughter $13,000. Then in 2002, you gave your son $10,000 and your daughter $15,000. In this case you have three gifts over the limit. The excess of which is $2,000 + $2,000 + $4,000 = $8,000. Your total used gift exemption would be $8,000.

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 expect 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 expect 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).

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.