Thoughtful planning before your death may be the only thing that keeps the Internal Revenue Service from getting a large share of your estate after you die. Your heirs currently can inherit up to $2 million tax-free in 2007, but anything greater is taxed at 45%. Changes in the tax laws however have the exemption amount increasing and the tax rates decreasing.
The value of your estate will be set after you die.
Although you won't be around, you should be aware of the potential
value of your estate and tax liabilities before your death. This
information will help you determine if there will be enough money
to pay taxes and other estate expenses, as well as how much will
be left for your heirs.
For tax purposes, what determines your "estate"?
Your estate is everything you own in your name and your
share of anything you own with other people. It can be real
property (such as land and buildings) or it can be personal
property (such as jewelry, collections and antiques). Here's a
list of typical items included in an estate:
Real estate.
Stocks, bonds, mutual funds.
Interest and dividends owed to you but not yet paid.
Bank accounts.
All tangible personal property.
Life insurance policies.
No-fault insurance payments due to you.
Deferred compensation, stock options, annuities and
other deferred payout arrangements.
Value of any qualified retirement plans — pensions,
IRAs, 401(k), 403(b), Section 457 plans, and profit sharing.
Claims paid for pain and suffering, even after your
death (but not claims for wrongful death).
Income tax refunds.
Forgiven debts.
Custodial accounts for which you are the custodian (if
you created the accounts).
Closely held business interests.
Your estate's value is determined by "fair market value"
An estate's worth is determined by finding the fair
market value of your real and personal property. Because market
values fluctuate over time and appraisals of the same property may
differ, determining the value of your estate may not be easy.
Just as everything you own is part of your estate, what
you owe reduces the value of your estate. Income taxes, mortgages
and other debts, funeral expenses and the costs of settling your
estate are deducted from your estate's worth. So is the value of
any property you transfer to a charity or to your surviving spouse.
The difference between what you own and what you owe and
transfer to others is the value of your estate. If taxes are due,
your estate must pay them within nine months of your death. If
your estate doesn't pay when the tax is due, your heirs may have
to pay the taxes themselves.
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