# 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. This calculator can help you estimate your estate tax liability for 2009. You can also use it 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.

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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 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. In the example below you die in 2009 and your estate is worth \$6,000,000:

1. You pay no estate taxes on the amount under your exemption amount. This means that the first \$3,500,000, of your estate would be tax-free in 2009.

2. Using the Estate Tax Rates Table, we find that \$3,000,000 to \$10,000,000 is taxed at 55%. Except that this rate exceeds the maximum rate of 45% in effect for 2009 (see the Exemptions and Maximum Tax Rates). Hence, we need to use the lower rate to 45% for this range. This produces a tax of \$1,125,000 for this portion of the estate.

3. Your total estate tax, if you died in 2009, would then be:
 Estate Rate Amount First \$3,500,000 0% \$0 over \$3,500,000 45% \$1,125,000 Total tax \$1,125,000

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 2009
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+ 45%

Please note that for 2009 there is an Exemption of \$3,500,000 for estates (unless you have a used gift exemption). Under normal circumstances you will owe no taxes on estates of \$3,500,000 or less. The value of your estate over \$3,500,000 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 2009 is 45%, and due to the \$3,500,000 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\$1,250,00041%
\$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.

2000 and prior\$10,000\$20,000
2001 - 2005\$11,000\$22,000
2006 - 2008\$12,000\$24,000
2009\$13,000\$26,000

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