Free Estate Size Worksheet and Tax Calculator - Married

Include the value of any business property that you or your spouse may own. Such property may include your share of a business (e.g., sole proprietorship, partnership, corporation, limited liability company, or other entity). It could include tools, equipment or other assets used in a business. Use your best judgment to determine its fair market value, the amount for which the property could be sold to a neutral third party. The accountant or tax return preparer for the business may be able to help you determine the value.

The purpose of a bypass trust can be understood best by understanding the problem that can occur if it is not used.

The Problem. Assume Mary has assets of $2,200,000 and her spouse, Joe, has assets of $500,000. If Mary dies first and leaves all of her assets outright to Joe there will be no tax on her estate. The unlimited marital deductionallows transfers between spouses to be made tax free; in technical terms, the $2,200,000 passing to Joe would be subtracted from Mary's gross estate of $2,200,000. The result to Mary�s taxable estate is that it is valued at zero, and so no federal estate tax is owed. Mary's federal applicable exclusion amount of $2,000,000 is not used -- it is not needed. When Joe dies, his estate will total $2,700,000 (his original $500,000, plus the $2,200,000 that he received from Mary). Joe can protect the first $2,000,000 from estate taxes by using his federal applicable exclusion. However, although Joe has protected $2,000,000 of his estate using his federal applicable exclusion amount, the remainder of his estate is subject to tax. Thus, his estate will pay approximately $322,000 in federal estate taxes on the remaining $700,000. As we will see, the use of a bypass trust would save $322,000 by avoiding federal estate taxes otherwise payable by Joe's estate, and in other cases, use of a bypass trust can save larger amounts.

Explanation of the Solution. In simplified terms, assets from the spouse who dies first (usually in an amount approximately equal to the federal applicable exclusion amount), are placed in a bypass trust. The trust includes terms that allow the surviving spouse to receive payments from the trust during the spouse's lifetime. These payments can include as much as necessary to support the surviving spouse from the trust's assets. After the surviving spouse's death, the bypass trust assets are distributed to other beneficiaries, perhaps the children.

The federal applicable exclusion amount of the spouse who dies first offsets the federal estate tax that would otherwise be due on the amount that goes into the bypass trust. The surviving spouse is not required to include the trust assets in his or her estate (even though that spouse was entitled to distributions from the trust during his or her lifetime). Thus, the trust assets from the estate of the spouse who died first "bypass" the surviving spouse's estate. The surviving spouse's taxable estate is lower than what it would have been if the first spouse's federal applicable exclusion amount had been distributed outright to the surviving spouse instead of being held in the bypass trust.

Example - The Solution. Assume the same facts as in the prior example. Mary has assets of $2,200,000 and her spouse Joe has assets of $500,000. Mary dies first, but this time she has a will with bypass trust provisions. In this example, Mary leaves $2,000,000 in the bypass trust for Joe's benefit during his lifetime with any unused portion going to their two children on Joe�s death; and Mary gives the remaining $200,000 outright to Joe. The unlimited marital deduction allows the $200,000 passing to Joe to be subtracted from Mary's gross estate of $2,200,000, and this results in a taxable estate of $2,000,000 for Mary. This time, Mary's federal applicable exclusion amount of $2,000,000 is used to offset the amount left in the bypass trust, and so again no federal estate tax is owed. The unlimited marital deduction is used for assets passing to Joe, and Mary�s federal applicable exclusion amount is used for assets passing into the bypass trust, so no estate taxes are owed upon Mary�s death.

Mary�s bypass trust is not included in Joe�s estate. So, when Joe dies, his estate will total $700,000 (his original $500,000, plus the $200,000 that he received outright from Mary). Joe then uses his federal applicable exclusion (up to $2,000,000) to protect his $700,000 estate from federal estate taxes, so no federal estate taxes are owed. In this example, Joe's estate does not owe the approximately $322,000 in federal estate taxes that was owed in the prior example. And here's the nice part - the assets in Mary's bypass trust have grown because Joe did not need any of the bypass trust assets for his support. No federal estate tax is owed on any part of the amount in Mary�s bypass trust (the original $2,200,000 plus appreciation) that is now being distributed to Joe and Mary's two children. Joe had the comfort of knowing that the bypass trust assets were available to him, and the trust assets increased nicely because of prudent investment; moreover, no federal estate tax is owed on the appreciation because this growth occurred after the transfer.

The optimal amount to leave to a spouse in a bypass trust (instead of outright) is often not exactly the amount of the federal applicable exclusion. Most bypass trusts are funded using special "formula" language in your will (or living trust). Such language takes into consideration all of the factors that help offset federal estate tax, including the federal applicable exclusion amount (which is really part of the unified credit), funeral and administrative expenses, and charitable bequests. For more information, see the Federal Applicable Exclusion Amount / Unified Credit topic.

Include the current balances of your checking accounts, savings accounts, certificates of deposit, money market accounts, and other "cash" accounts. Use the balances from your most recent statements, or obtain more current balances through direct contact (e.g., phone or Internet access) with the institution that maintains the applicable account.

Your estate can claim a deduction on your federal estate tax return for amounts that you leave to charitable organizations. The charitable organizations must meet certain basic requirements.

Enter the current unpaid balance on any credit card obligations. Use the balances from your most recent statements, or obtain more current balances through direct contact (e.g., phone or Internet access) with the credit card company.

The "Earnings Growth Rate" column can be used to project an annual earnings rate for cash accounts and investments. It can also be used to increase an asset category by an "inflation" factor or other projected growth rate. Similarly, it can be used to project an annual percentage growth of debt.

The value of the assets of you and your spouse, minus your combined liabilities, is needed to determine whether "estate taxes" may be an important consideration in the preparation of wills (or living trusts) for you and/or your spouse. Federal estate taxes are not usually a factor if the combined value of your estates is less than the federal applicable exclusion amount of $2,000,000. Although your combined assets may be less than $2,000,000 now, future growth in the value of your assets may cause the value of your estates to exceed the federal applicable exclusion amount. With proper planning, you and your spouse can take advantage of two federal applicable exclusion amounts. However, without proper planning you may unintentionally "waste" all or part of one of the two federal applicable exclusion amounts.

The Estate Size Worksheet and Tax Calculator is divided into four sections. First, you provide some personal information. Next, you are asked for information regarding the values of current assets and liabilities of you and your spouse. In the third section, you can enter some assumptions about how your investments and other assets may increase in the future because of inflation, investment earnings, and additional savings. In the last section, you can see how much federal estate tax would be owed on the current and future values of your estate, your spouse's estate, and your combined estates.

For an explanation of how personal information is used, see the Personal Information topic.

Under current federal estate tax law, you can transfer $2,000,000 (the "federal applicable exclusion amount") to your estate beneficiaries with no liability for federal estate or gift taxes. The federal applicable exclusion amount is scheduled to increase to $3,500,000 by 2009. The federal applicable exclusion amount is usually used to protect transfers that are made from your estate at your death. However you can use up some or all of your federal applicable exclusion amount by making large gifts during your lifetime.

This federal applicable exclusion amount is really a unified credit. This credit is called a unified credit because the federal gift and estate taxing schemes are unified into one system, with one unified credit of $780,800 (the unified credit amount) available to offset the taxes that would otherwise be imposed on transfers totaling $2,000,000 (the federal applicable exclusion amount). For example, for a death occurring in 2008, an estate with taxable assets of $2,000,000 would be assessed with $780,800 in federal estate taxes. However, the unified credit of $780,800 would be subtracted from the tax due, and thus, there would be no liability.

The federal applicable exclusion and unified credit amounts are shown in the following table:

For People Who Die During:
2007 - Federal Exclusion Amount: $ 2,000,000 Unified Credit Amount: $780,800
2008 - Federal Exclusion Amount: $ 2,000,000 Unified Credit Amount: $780,800
2009 - Federal Exclusion Amount: $ 3,500,000 Unified Credit Amount: $1,455,800
2010 - No Estate Tax owed, unless current laws are repealed or modified.

Based on the combined current estate value of you and your spouse and the expected future growth of your estates, your combined estates may be liable for federal estate taxes.

The tax calculation starts with the estate of the spouse who is presumed to have died first by subtracting that spouse's liabilities from his/her assets. Deductions are then allowed for "Funeral and Administrative Expenses" and "Bequests to Charity."

Next a "marital deduction" is allowed for the value of assets that are included in the first spouse's estate and which pass to the surviving spouse.

The "Gross Federal Estate Tax" is calculated on the "Federal Taxable Estate," using the federal estate tax rates. The "Unified Credit" (which protects the federal applicable exclusion amount from tax) is then deducted to determine the "Net Federal Estate Tax." For more information, see the Federal Applicable Exclusion Amount / Unified Credit topic.

A similar calculation is made for the surviving spouse. In determining the value of the surviving spouse's estate, the amount that was allowed as a "marital deduction" in the first estate is now added to the value of the surviving spouse's estate.

Note: This federal estate tax calculation ignores the state death tax credit, because this credit (available on your federal estate tax return) is offset in most states by a state estate tax that is equal to the credit given on the federal return. Thus, the federal tax calculation is equal to the combined federal and state estate taxes that are applicable in most states.

The costs paid by your estate for your funeral and burial costs can usually be claimed as a deduction on the federal estate tax return.

In addition, you can also deduct the administrative costs incurred to handle your estate. These costs may include court costs, executor fees, and legal fees.

In many cases, these costs range from two to four percent of "your share of the net estate value."

Typically, estate planning focuses primarily on the value of your estate at the time that you are doing the estate planning, with only cursory attention given to increases (or decreases) that may occur in the future. Although predictions regarding the future are speculative in nature, subject to changes that you cannot accurately anticipate, it is worthwhile for you to spend some time reviewing how much the estates of you and your spouse might grow in size, given certain assumptions.

The size of the combined estates of you and your spouse can increase significantly, based on three factors: annual increases by you and your spouse from earnings (or other sources), annual increases over a longer period of years, and an earnings growth rate that causes the investments and other assets of you and your spouse to increase in value even if you do not add "new" savings.

Include the current values of your stocks, stock options, bonds, mutual funds, and other investments. For accounts with brokerage firms, use the balances from your most recent statements, or obtain more current balances through direct contact (e.g., phone or Internet access) with the brokerage firm that maintains the applicable account. For stocks, bonds, and other securities that you hold directly in your name, you may be able to obtain price quotes from your local newspaper or an Internet source. Tables can be obtained from banks and Internet sources to value U.S. savings bonds.

Your estate includes the value of life insurance policies that you own at your death. If the policy is on your life, the value to be included in the estate is the amount of the death proceeds. This amount is usually the face amount, but can be more or less than the face amount depending on the pay-out terms of the policy. If you own a policy on someone else's life (perhaps a child), the value to be included in the estate is the cash surrender value of the policy as of your date of death. Generally, do not include values for policies that you do not own, even if your life is the life insured by the policy. Use the same guidelines for the life insurance policies of your spouse.

There is no gift or estate tax liability on transfers between spouses. The amount that can be transferred tax-free to a spouse is unlimited. When calculating how much federal estate tax will be due for your estate, in most cases, assets that you leave to your surviving spouse can be deducted from the overall value of your estate. This unlimited "marital deduction" allows you to transfer your entire estate to your surviving spouse without incurring any federal estate tax. However, when your surviving spouse dies, there may be significant taxes to pay at that time. Assets can qualify for the marital deduction only if the surviving spouse and the decedent were married at the time of the decedent's death. Special rules apply to spouses who are not U.S. citizens.

With proper estate planning you can minimize the amount of federal estate taxes that might be owed in connection with the estate of the spouse who dies second.

The "Number of Years For Annual Increases" column is used in conjunction with the Annual Increases by You and Your Spouse from Earnings column to project how many years the annual increase (or decrease) will be in effect. For example, you may want to project that you will add $10,000 per year to the "Investments" of you and your spouse for 15 years by saving that amount from your annual earnings and adding it to your mutual fund investments.

Enter the values of any other assets that you or your spouse may own that did not seem to fit well under any of the prior categories.

Enter the current unpaid balance on any other loans or debts that you or your spouse may have. This category may include education loans or a loan received from a relative. Use the balances from your most recent statements, or obtain more current balances through direct contact (e.g., phone or Internet access) with the lender.

Include the fair market value of any other real estate that you or your spouse own. Such real estate could include a time share condominium, a vacant lot, forest reserve acres, farmland, or rental property. If you own the real estate jointly with your spouse, enter the full value in the "joint with spouse" column. However, if you know that you own the property with your spouse as "tenants in common" (and not "jointly with rights of survivorship"), then enter your one-half value in the "you" column, and your spouse's one-half value in the "your spouse" column. Base your valuation amount on "fair market value," the amount for which the real estate could be sold to a neutral third party. The amount that you paid for the real estate may be relevant in helping you decide the price at which you could sell the real estate to a third party, but you should also take into consideration any other factors (including the mere passage of time) that might influence the value.

Valuations provided by local real estate taxing authorities may be somewhat helpful, but in many jurisdictions, the valuation for real estate tax purposes is not actually fair market value even though it may carry the label of "true value" or "full value."

The personal information section includes your name and marital status. Although federal estate tax rates are the same for singles and married individuals, there are other important differences. Property that passes at death to a surviving spouse is not subject to federal estate tax, and therefore, the tax calculation and analysis is different for a married couple.

Under current federal estate tax law, you can transfer a certain amount of assets (the "federal applicable exclusion amount") to your estate beneficiaries with no liability for federal estate or gift taxes. The program uses the "Effective Date for this Calculation" to determine the correct amount of federal applicable exclusion amount to use in the federal estate tax calculation. For example, if you use any date in 2008 as the "Effective Date for this Calculation," the federal applicable exclusion amount of $2,000,000 will be used. For a more complete explanation, see the Federal Applicable Exclusion Amount / Unified Credit topic.

Include the value of vehicles, jewelry, household furnishings, and personal effects. For vehicles, the "blue book" value can be obtained by contacting a dealer, or you can obtain a reasonable estimate by checking the prices of comparable vehicles listed for sale in your local newspaper. For other personal property items, be sure to use the value that could be obtained if such items were sold. Sometimes the only reasonable value is your best guess as to what the items would bring at a garage sale, an amount that might be considerably less than the value of the items to you. A reasonable estimate is acceptable.

Base your valuation amount on "fair market value," the amount for which you could sell the residence to a neutral third party. The amount that you paid for the residence may be relevant in helping you decide the price at which you could sell the residence to a third party, but you should also take into consideration any other factors (including the mere passage of time) that might influence the value.

If you own the residence jointly with your spouse, enter the full value in the "joint with spouse" column. However, if you know that you own the property with your spouse as "tenants in common" {and not "jointly with rights of survivorship"), then enter your one-half value in the "you" column, and your spouse's one-half value in the "your spouse" column.

Valuations provided by your local real estate taxing authority may be somewhat helpful, but in many jurisdictions, the valuation for real estate tax purposes is not actually fair market value even though it may carry the label of "true value" or "full value."

If you own more than one personal residence (perhaps a vacation home), be sure to also include the value of that residence.

Enter the current unpaid balance on any mortgages, deeds of trust, or similar loan obligations that are liens on your home. This category includes home equity loans. Use the balances from your most recent statements, or obtain more current balances through direct contact (e.g., phone or Internet access) with the institution or other lender.

This calculator allows you considerable flexibility in estimating your future federal estate taxes, using your earlier assumption as to whether you or your spouse will die first. You need to enter your best estimates as to the amounts of "funeral and administrative expenses" and "charitable bequests."

For the marital deduction, enter the amount that you expect to give to your spouse in excess of whatever amount you might choose to give your spouse in a bypass trust. For example, if you wish to give $500,000 in a bypass trust and $200,000 in excess of the $500,000 bypass amount, enter only $200,000 as the "marital deduction."

Note: The program will automatically limit the bypass amount to an amount not greater than the federal exclusion amount. For example, if you are preparing this worksheet in 2008, the program knows that the federal applicable exclusion amount for 2009 (one year after 2008) is $3,500,000. Therefore, the program will assume a bypass amount of not greater than those respective federal applicable exclusion amounts. The amount for 2011 assumes no further changes to federal estate tax law. In fact, Congress is likely to make some changes to avoid the current state of the law which is: (i) a federal exclusion amount of $3,500,000 for 2009 (good); (ii) no federal estate tax at all for 2010 (better); and (iii) back to an exclusion amount of only $1,000,000 for 2011 (only Congress could have done this).

Include the current values of any IRA accounts, 401k plan, pension plan accounts, or other similar retirement assets that you or your spouse may own. However, if for a specific account the right of you (or your spouse) to payments or benefits terminates upon the death of the owner (you or your spouse), and if there are no benefits for survivors, do not include any value for that particular account.

1. The Estate Size Worksheet and Tax Calculator is not a legal document and does not require any signature, witnesses, or notarization.

The total federal estate tax can be affected by which spouse dies first. This program assumes that a marital deduction will be available when the first spouse dies because there will be a surviving spouse to receive assets from the spouse who died first. Further, this program assumes that when the second spouse dies, there will be no marital deduction because there will not be a surviving spouse to receive assets.

The estimated value of your assets, minus the estimated value of your liabilities is used in calculating the amount of federal estate taxes. Similarly, the estimated value of your spouse's assets, minus the estimated value of your spouse's liabilities is used in calculating the amount of federal estate taxes in your spouse's estate. The estate of the spouse who dies second will also include assets from the first spouse in many circumstances.

In general, each asset should be valued at "fair market value," the amount for which you could sell the asset to a neutral third party. The amount that you paid for an asset may be relevant in deciding fair market value, but cost is not the determining factor.

Keep in mind that you are entering estimated values. It is not necessary to spend a lot of time trying to eliminate minor differences between your best estimate and the actual fair market value.

Note: When entering values for property that you own jointly with your spouse, enter the full value in the "joint with spouse" column. However, if you know that you own the property with your spouse as "tenants in common" (and not "jointly with rights of survivorship"), then enter your one-half value in the "you" column, and your spouse's one-half value in the "your spouse" column. When entering values for property that you own jointly with another person other than your spouse, enter only the value of your share of the property and enter it under the "you" column.

This program offers three methods for your use in providing this information. Each method has its advantages.

No Detail: This method is the shortest and fastest. Simply enter one amount for your total assets and one amount for your total liabilities, and then one amount for your spouse's total assets and one amount for your spouse's total liabilities.

Brief Summary: This method allows you to enter estimated totals for typical asset and liability categories. The program then adds the assets and deducts the liabilities for you. This method can be completed quickly if you already have a good idea of the values of your assets and liabilities by categories.

Full Detail: This method allows you to enter detailed information for each asset and liability category. The advantage to this approach is that in addition to obtaining a tax calculation, you also have a listing of the assets and liabilities of you and your spouse, as well as a record of how you calculated the estimated value of your estates.

You should include the categories of assets and liabilities that apply to you and/or your spouse. The program then customizes this worksheet to include only questions about those particular categories. The next dialogs will allow you to describe and value specific assets (or liabilities) within the particular categories that you have selected.

In general, each asset should be valued at "fair market value," the amount for which you could sell the asset to a neutral third party. The amount that you paid for an asset may be relevant in deciding fair market value, but cost is not the determining factor.

Keep in mind that you are entering estimated values. It is not necessary to spend a lot of time trying to eliminate minor differences between your best estimate and the actual fair market value.

Note: When entering values for property that you own jointly with your spouse, enter the full value in the "joint with spouse" column. When entering values for property that you own jointly with another person other than your spouse, enter only the value of your share of the property and enter it under the "you" column.