The 250 Eldercare Questions Everyone Should Ask by Lita Epstein

Author:Lita Epstein
Language: eng
Format: epub
Tags: ebook, book
Publisher: Adams Business, an imprint of Adams Media, Inc.
Published: 2009-07-15T00:00:00+00:00

Chapter 13

CALCULATING THE

ESTATE TAX

CALCULATING ESTATE TAX can be a mathematical nightmare. This chapter reviews the basics of what you must consider to calculate your elder’s estate tax after his death.

Question 144: What are the key parts of calculating estate tax?

The calculation of the tax is simple once you find the value of the net estate. Getting to that value is where the complications arise. Once you know the true value of the estate assets (discussed in greater detail in questions 141 and 142 ), here is the actual formula for finding the net estate tax due:

Take the gross estate value, and subtract the amount allowed by deductions (see questions 138 to 140 and 155 to 162 ). This gives the taxable estate.

Now add taxable lifetime transfers since 1976 (see Chapter 12 ). This gives your tax base.

Next, multiply the tax base by the applicable estate tax rate.

Finally, subtract any credits to find your net estate tax due (see Chapter 12 and questions 164 to 168 ).

In the following questions, I’ll break down the key parts of this calculation and discuss how the estate tax calculation differs from the income tax calculation.

Question 145: What is the difference in calculating estate tax versus income tax?

The primary difference between income tax and estate tax calculations is how one determines the applicable tax rate (see Chapter 12 ). For income tax, you calculate your taxes based on the level of income earned in a given year. For estate tax, you need to calculate what remains in an estate as of the date of your elder’s death. You also need to add all cumulative taxable transfers of wealth since 1976, when the gift tax and estate tax were combined. That means any taxable gifts given to family over the years must be included as part of the total estate.

If your elder’s estate involves more than the current maximum allowed to be excluded from tax—$2 million in 2007 and 2008 and $3.5 million in 2009—you must be able to calculate how much was given in taxable gifts over the years as well as how much is left in the estate. Taxable gifts are gifts of more than $12,000 in any one year ($24,000 for a couple). The government can adjust this amount annually for inflation. If taxes were already paid on these gifts, they can be subtracted as credits, so the estate is not taxed twice. You will face a big problem if your elder has not kept proper records and you can’t perform this calculation.

Question 146: What is the gross estate?

The gross estate serves as the starting point for all estate tax calculations. Although in many states the gross estate is the same as the probate estate, this is not true at the federal level. In addition to the probate estate, you must add any items not included in probate, such as property transferred by will substitutes (see Chapter 11 ), insurance proceeds, and retirement benefits.

Question 147: Which property is calculated in the gross estate?

When

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