Estate tax planning calculator: safeguard your wealth for the next generation
It can be difficult to make an accurate analysis of the value of your estate and the potential taxes owed, due to the vast amount of factors to take into account. Having a calculator to help guide you through the calculations – something that may be helpful for assuring the future of your successors. Further, you can use this calculator to devise a strategy to reduce your estate taxes and provide the most benefit to your inheritor.
Let begin by reviewing what the calculator may be used for, how to effectively reduce estate taxes, and conclude with how you may actually use the calculator.
Your estate taxes
Federal estate taxes are quite different from other forms of taxation and historically have been quite expensive, beginning at 35%. Your estate will have to pay federal taxes if its net value is more then the exempt amount set out by Congress upon your passing. In 2013 the exemption amount was set to $1,000,000 and the taxation rate was raised to 55% for any estate inheritance surpassing that amount. Some states have their own inheritance taxation, so in some instances your estate may be exempt from federal tax.
Determining the current net value of your estate requires all your debts to be subtracted from all your assets. This includes everything from your personal property, to your bank accounts and investments, and even benefits from life insurance. Understanding the net value of your estate will help you to properly plan your future, and the future of your successors. If you plan ahead you may easily reduce or even eliminate potential estate taxes.
How to reduce the taxes on your estate
Reducing your estate taxes can provide a great benefit to your successors and maximize their inheritance. However, there are only three specific ways to reduce or eliminate state taxes.
The first method is for married couples to use both estate tax exemptions, strategically doubling the exemption amount to $2,000,000. Alternatively, it is possible to remove some or all assets from your estate prior to your passing to greatly reduce the net value to below the exempted amount. Finally, it is possible to acquire life insurance that will pay for any remaining estate taxes and/or replace any assets given to charity.
By manipulating any combination of these factors in the estate tax planning calculator you may devise the best strategy to guarantee the future inheritance for your loved ones.
How to use the calculator
The estate planning calculator is very straightforward to use. The calculator is divided into two sections: the information intake, and the report.
The information intake is further subdivided into three categories: marital status, gifts and charity; assets and life insurance; and finally liabilities and expenses. You may leave any information field blank or at a value of zero if it does not apply to you.
Please continue reading for a step-by-step guide of the information required in each subsection.
1. Marital status, gifts, and charity: This subsection requires information about whether you are single or married, and if you would like to transfer any assets to your spouse. Married couples do not have to pay estate taxes on the assets transferred to the surviving spouse, however, these assets may be taxed when later passed on to other beneficiaries.
2. Gift exemptions were put in place to prevent wealthy individuals from giving away their entire estate prior to their death, therefore, large gifts may work to reduce the tax exemption limit and increase estate taxation. While alternatively, any charitable contributions can effectively reduce estate taxes – every dollar contributed to charity reduces estate taxes by the same amount.
3. Assets and life insurance: This subsection requires information about the value of your personal belongings such as the equity in your home, other real estate, vehicles and automobiles, jewelry or other household items. Then you may include any money in your checking or savings accounts, retirement accounts (IRAs, 401ks, annuities, etc), and any bonds, mutual funds, or stocks. To conclude this subsection, add the cash value of your life insurance or any other insurance policy values, plus the value of any other assets not reviewed.
4. Liabilities & expenses: In this final subsection you should add any money owed on your home mortgage or other mortgages, and any outstanding auto, student, or credit card loans. You may also factor in potential funeral expenses and prospective probate costs. This is the percentage amount that both the lawyer and executor may be entitled to from your estate.
Your estate tax planning resultsOnce this information has been added to the estate tax planning calculator you may proceed to your report.Below the retirement plan and investment inputs, you will receive a prompt of how long your retirement savings will last without social security. Indeed, social security may help to prolong your retirement funds.Below that, you may view a graph of your 401(k) savings. This calculator assumes that your earnings are based on a 401(k) retirement account, however, this graph indicates how your retirement savings from line four have accumulated for retirement based on the information you provided.
This graph is able to visually contrast your savings with social security, and without social security, based on how many years each will last you respectively.
The first tab below the information inputs is a chart outlining the projected value of your estate. The blue line tracks the total estate value, while the green outlines how much will be left remaining for your beneficiary.
The next tab is a pie chart displaying your estate distribution. Here you may see what percentage of your estate is going towards charity, your spouse, expenses at death, estate taxes, and what is left remaining for your heirs.
The last tab is a detailed table of your estate tax projection where you may examine your assets, liabilities, taxes and remaining money for your heir by each year. All the columns in this table may expand or contract for your convenient viewing.