Estate Tax PlanningEstate 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 2005. You can also use it to project the value of your estate, and the associated estate tax, for the next ten years. The results and explanations generated by this calculator may vary due to user input and assumptions. New York Life Insurance Company does not guarantee the accuracy of the calculations, results, explanations, nor applicability to your specific situation. We recommend that you use this calculator as a guideline only and you should ultimately seek the guidance of an experienced professional. 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 will remain the same for the entire period, however the maximum tax rate will be gradually reduced from 55% to 45% over the next ten years. In addition, the Estate Tax Exemption increases gradually to $3.5 million in 2009. Estate taxes are then officially repealed for 2010, but could come back in 2011, with the rules that were in effect in 2001. Here is a simple example of calculating your estate tax. Let's assume it's 2005 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 $1,500,000, of your estate would be tax free in 2005. Using the Estate Tax Rates Table, we find that $1,500,000 to $2,000,000 is taxed at 45%, which produces a tax of $225,000. Again 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 47% in effect for 2005 (see the Exemptions and Maximum Tax Rates). Hence, we need to use the lower rate of 47% for this range. This produces a tax of $235,000. The remaining estate over $2,500,000, which in our example is $3,500,000, is also taxed at the maximum allowed rate of 47%. This produces a tax of $1,645,000. Your total estate tax, if you died in 2005, would then be: EstateRateAmount First $1,500,0000%$0 $1,500,000 to $2,000,00045%$225,000 $2,000,000 to $2,500,00048%$235,000 over $3,500,00048%$1,645,000 Total tax $2,105,000 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. Please note that not all of the ranges listed below are used in any given tax year. 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 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 There is no estate tax on any amount below your exemption (unless you have a used gift exemption). This is good news since the estate tax exemption is scheduled to increase from $1 million in 2003 to $3.5 million in 2009, with estate taxes completely eliminated in 2011. At the same time, the maximum tax rate will be gradually reduced from 55% to 45%. Unfortunately, the old exemption and the maximum tax rate will return in 2011 unless the new law is extended by Congress before then. For example, in 2005 an estate valued at $2,500,000 would have a $1,500,000 exemption. This leaves $1,000,000 subject to estate taxes. According to the Estate Tax Rates Table we would have $500,000 taxed at 45%. We would also have $500,000 taxed at the maximum 2005 rate of 47%. This was reduced from the 49% shown on the Estate Tax Rates Table to reflect the maximum estate tax rate of 47% applicable in 2005. The tax would then be $500,000 X 45% plus $500,000 X 47% or a total estate tax of $460,000. The same estate in 2006 would have an estate tax exemption of $2,000,000. A $2,500,000 estate would have $500,000 in the 49% estate tax range according to the Estate Tax Rates Table. This rate is reduced to 46%, which is the maximum rate applicable in 2006. Using this lower rate, the total estate tax is $230,000. 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 a wealthy individual from giving away their entire estate before they die, thus escaping estate taxes. If you have never given a gift over $11,000, other than gifts to non-profit organizations or your spouse, this amount will always be $0*. 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 $11,000* in gifts to any individual recipient in a single year. If you are married, determine if the combined total of gifts to any individual recipient, between you and your spouse, has ever exceeded $22,000 in a single year. * For each recipient and year where you exceeded the $11,000 (for singles) or $22,000 (for married couples) limit, calculate the excess. The total excesses from the previous step. This total 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: If 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 $11,000. The excess of which is $2,000 + $2,000 + $4,000 = $8,000. Your total used gift exemption would be $8,000. Please note that the gift limit is $11,000 in 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. 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 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). Asset definitions HomeCurrent 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. AutomobilesThis 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. JewelryThe 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 itemsThe 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. StocksIf 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. CashIf you have any other cash, enter the total here. OtherIf you have any other assets of value, you can enter the total here. Liabilities Definitions Home mortgage principalThis 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 can not and do not guarantee their applicability or accuracy in regards 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. More Calculators Life Insurance Roth IRA Which will provide the most retirement income? How will changes in my tax rate affect the decision? What option is best for estate planning? How do return rates affect my retirement income? When should I begin saving? 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