Estate Cost Planner
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 As of 2010, the estate tax has been repealed, but it will reappear starting in 2011.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. Click on the "View Report" button for a detailed look at your results.
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 possibly be retroactive to the beginning of 2010.
Calculator Definitions
Estate tax calculationIn 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 RatesIn 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.
Marital statusChoose 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 spouseMarried 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 exemptionLarge 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 contributionsGiving 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 insuranceSection 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).