- 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 55% to 45%. In addition, the Estate
Tax Exemption increases to $3.5 million in 2009. This calculator
assumes we revert to the old rules, rates and exemptions in 2011
and beyond.
Here is a simple example of calculating your estate tax. Let's
assume it's 2008 and your estate is worth $6,000,000:
- You pay no estate taxes on the amount under your exemption
amount. This means that the first $2,000,000, of your estate would
be tax-free in 2008.
- Using the Estate Tax Rates Table, we find
that $2,000,000 to $2,500,000 is taxed at 49%. Except that this
rate exceeds the maximum rate of 45% in effect for 2008 (see the
Exemptions and Maximum Tax Rates). Hence, we
need to use the lower rate of 45% for this range. This produces a
tax of $225,000 for this portion of the estate.
- The remaining estate over $2,500,000, which in our example is
$3,500,000, is also taxed at the maximum allowed rate of 45%. This
produces a tax of $1,575,000.
- Your total estate tax, if you died in 2008, would then be:
| Estate |
Rate |
Amount |
| First $2,000,000 |
0% |
$0 |
| $2,000,000 to $2,500,000 |
45% |
$225,000 |
| over $3,500,000 |
45% |
$1,575,000 |
| Total tax |
|
$1,800,000 |
-
- Estate Tax Rates Table
- This table shows the tax rates used for Estate Taxes. Like
income taxes, estate taxes are a graduated tax. As your estate's
value increases, so does the tax for that portion of your estate.
| Estate Tax Rates Table 2008 |
| 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+ |
|
45% |
Please note that for 2008 there is an Exemption of $2,000,000
for estates (unless you have a used gift
exemption). Under normal circumstances you will owe no taxes on
estates of $2,000,000 or less. The value of your estate over
$2,000,000 would be subject to a 45% tax.
- Exemptions and Maximum Tax Rates
- There is no estate tax on any amount below your exemption
(unless you have a used gift exemption). The
maximum tax rate for 2008 is 45%, and due to the $2,000,000
exemption, the estate tax is effectively 45% for almost all
estates. The table below would once again become an important
factor in 2011 when both the maximum tax rate and the exemption
amount return to their 2001 levels.
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 |
$1,250,000 |
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% |
| Exemptions and Maximum Tax Rates |
| Year |
Estate Tax Exemption |
Highest Rate |
| 2003 |
$1 million |
49% |
| 2004 |
$1.5 million |
48% |
| 2005 |
$1.5 million |
47% |
| 2006 |
$2 million |
46% |
| 2007 |
$2 million |
45% |
| 2008 |
$2 million |
45% |
| 2009 |
$3.5 million |
45% |
| 2010 |
N/A (taxes eliminated) |
0% |
| 2011 |
$1 million |
60% |
- 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 2006, 2007
and 2008 the gift limit is $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.
If you have given large gifts, you can calculate your used
gift exemption as follows:
- 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.
- For each recipient and year where you exceeded these limit,
calculate the excess.
- The total excesses from the previous step is your "Used gift
exemption."
- 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.
- 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.
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