Estate Tax Computation

I have included two issues on the same page. Forget the numbers first. The page simply shows you how someone would determine their estate tax. (State taxes not included for this exercise). Also note that most people are familiar with the $675,000 lifetime exemption (2003). That is the same as $220,550 of estate tax. To make the page more productive, I simply included the example below and put the figures in where necessary.

An estate size is $1,000,000 for a single person. Funeral expenses are 2%, debts are $250,000 and there are no claims against the estate. Charitable deductions are $50,000. Adjustable post 76 taxable gifts are $100,000 on which no gift taxes have been paid. Using the unified credit and no state tax, what is the amount of federal tax?

1. Gross Estate $1,000,000


2. Funeral and administrative Costs 20,000______

Estimated as 2__% of ________

3. Debts and Taxes 250,000_____

4. Claims Against Estate ____________


5. Adjusted Gross Estate 730,000____


6. Marital Deduction ____________

(NOTE: It is not required that all- or any- property be used under the marital transfer. Some may be designated to trusts- other property disclaimed- and even some property designed to be taxed on the first death.)

7. Charitable Deductions 50,000_____

Subtotal all deductions 50,000_____


8. Taxable Estate 680,000_____


9. Adjustable Taxable Gifts 100,000____

(Post 1976 lifetime taxable transfers not included in gross estate)


10. Tentative Tax Base 780,000_____

11. TAX 260,000____________


12. Gift taxes paid on post 1976 taxable gifts 0____________


13. Estate Tax Before Credits 260,000______


14. Tax Credits

a. Unified Credit 220,550______

State Death Tax ___________

b. State Death Tax Credit ___________

c. Credit for Foreign Tax ___________

d. Credit for tax on prior transfers ___________

Subtotal Credits 220,550


15. Net Federal Estate Tax Payable 39,450_____

Recognize that your estate may be valued at death or six months later whichever is more beneficial. And there are different ways of paying the tax if you have a farm or closely held business. Regardless, large estates can be taxed at 55% and clearly addresses the need for proper estate planning.

The estate size is now $1,500,000 for 2005. Simply change the nubmers above to reflect, say, a $2,000,000 estate and follow the same process.  The credit for 2005 is 555,800. Have fun!