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Calculate Estate Tax

Calculate Estate Tax

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Calculate Estate Tax

Leaving a legacy for those who survive you is an important part of financial planning. Sometimes a legacy equates to ensuring that your loved ones will have income after you are gone. In other cases, it means giving to a charitable organization. In most cases, beneficiaries of your legacy will owe the federal and some state governments an estate tax.

What Is Estate Tax?

Estate tax is the tax your heirs will pay on the property you leave to them. Generally speaking, any individual or organization other than your spouse or a federally-recognized charity will owe federal – and sometimes state – taxes on your estate.

How Is Estate Tax Calculated?

Similar to the concept of gross income on an income tax form, calculating your potential federal estate tax requires you to know your gross estate, or how much your combined assets are worth. Once you know your gross estate amount, you subtract any applicable deductions to find your taxable estate.

Estimating Your Gross Estate: Sample Estate

Your gross estate includes the fair market value of everything you own. This includes cash, securities, automobiles, real estate, business interests, and so on. Your gross estate also includes the death benefit of any life insurance policies you own. So a sample estate might look something like this:

Cash and savings $10,000
Securities and annuities $60,000
Automobiles $30,000
Personal assets (furniture, etc.) $250,000
Residence $500,000
Other real estate holdings $150,000
Business interests $500,000
Life insurance death benefits $1,000,000
Gross estate $2,500,000

Estimating Your Taxable Estate: Sample Estate

Once you’ve estimated your gross estate, subtract applicable deductions to find the taxable estate that will pass to beneficiaries other than your spouse or federally-recognized charities. Based on the sample gross estate, above, the taxable estate might look something like this:

Outstanding debts and administrative expenses(approximately 5 percent of gross estate) -$125,000
Charitable contributions planned at death -$100,000
Assets that will pass to surviving spouse at death -$1,000,000
Taxable estate $1,275,000

 

Your beneficiaries will owe the taxes owed on your taxable estate. Tax amounts will vary by the year of death. The federal government provides resources for understanding, estimating and filing estate taxes.

Are There Exceptions to Estate Tax?

There are a few exceptions to the estate tax.

  • In most cases, if your spouse or a federally-recognized charity will be inheriting assets from you, estate taxes don’t apply.
  • You can also employ a number of strategies – such as gifting or family partnerships – to help decrease the amount by which your estate will be taxed.
  • However, rules vary by year of death and by certain other circumstances, so it’s wise to consult with an attorney or other certified financial professional to learn about which approaches to preserving your legacy for your loved ones apply to your situation.

Note:

Neither AUL nor OneAmerica Securities nor their representatives provide tax or legal advice. For answers to specific questions and before making any decisions, please consult a qualified attorney or tax advisor.

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