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For an overview of current federal estate tax laws and a chart showing the amount of the federal estate tax exemption and estate tax rates from 1997 through 2014, see the following:
- Overview of Current Federal Estate Tax Laws
- Federal Estate Tax Exemption Chart, 1997 - 2014
Determine the Value of Your Net Estate
The value of your gross estate is what is used as the starting point for determining your estate tax liability.
Learn how to calculate an estimate of the value of your gross estate by reading:
- What Value of an Asset is Used for Estate Tax Purposes?
- How to Calculate the Value of Your Gross Estate
- Debts and expenses. including mortgages. lines of credit, personal loans, credit card debt. funeral expenses and medical bills ; as well as administrative expenses to settle your estate or Revocable Living Trust. including attorney, accounting and appraisal fees, storage and shipping fees, insurances, and court fees; (Tip. To get a rough estimate of the administrative expenses, multiply your gross estate by 5%);
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- Charitable transfers. including direct gifts and property set aside in a Charitable Remainder Trust or Charitable Lead Trust ; and
- Transfers to a spouse who is a U.S. citizen. including outright transfers by right of survivorship and transfers made to a trust that qualifies for the unlimited marital deduction. such as the "A Trust " established when using AB Trust planning or ABC Trust planning .
Determine Your Federal Estate Tax Liability
From your net estate is then subtracted your available federal estate tax exemption to arrive at your taxable estate. The federal estate tax exemption for the 2010 and 2011 tax years was $5,000,000, the exemption for the 2012 tax year was $5,120,000, the exemption for 2013 was $5,250,000, and it has increased to $5,340,000 in 2014. The exemption will continue to be indexed
for inflation in 2015 and later years.
Also note that if you've made any taxable gifts during your lifetime, then your available estate tax exemption will be equal to the difference between the total exemption available and the value of the lifetime gifts made.
Here are some examples that should help you to understand how an estate tax bill is calculated:
- Death in 2014, no lifetime gifts, taxable estate - If you die in 2014 and your gross estate is $6,000,000 and your allowable debts, expenses and deductions are $500,000, then your net estate is $5,500,000. You then subtract from your net estate your available estate tax exemption to arrive at your taxable estate. If you have not made any taxable gifts during your lifetime, then in this example your taxable estate will equal $250,000:
$5,500,000 net estate - $5,340,000 estate tax exemption = $160,000 taxable estate
Your taxable estate is then multiplied by 40% to arrive at your federal estate tax liability, which in this example equals $64,000 :$160,000 taxable estate x 40% rate = $64,000 tax liability
$5,340,000 exemption - $1,000,000 lifetime gifts = $4,340,000 exemption
Thus, your estate tax liability will be $464,000 :
$5,500,000 net estate - $4,340,000 available exemption = $1,160,000 taxable estate
$1,160,000 taxable estate x 40% rate = $464,000 tax liability
Estate Tax Calculator
To calculate an estimate of your federal estate tax liability, refer to the following calculator offered by the investment firm of Burton Asset Management, LLC. How Much Estate Tax Might You Owe?