While the amount of wealth required before paying the estate tax keeps changing, the method for determining the value of your estate has not. This is primarily due to the fact that the definition of your taxable estate is fairly simple: Take everything you own and subtract from it everything you owe.
Estate Tax - Not That Simple
Truth be told, there’s still plenty of complexity and planning opportunities for those potentially facing the estate tax thanks to differing reasonable interpretations of the value of “what you own.” So, if you’re someone who might have an estate value exceeding the current taxable limits, it could be well worth your while to work with an estate planning professional such as a CPA or an attorney.
Estate Tax - Estate Value Calculation
Items in your taxable estate include:
- Investments (stocks, bonds, mutual funds)
- Real estate
- Businesses
- Cars
- Life insurance proceeds payable to your estate
- Retirement plans (IRAs, Roth IRAs, 401(k)s)
- Annuities
Note that even accounts that are not subject to the income tax (e.g., Roth IRA and life insurance proceeds) are potentially subject to the estate tax since these items are includable in your taxable estate.
Beware: You May Have a Higher Taxable Estate Than You Think
Since some young families may own sizable life insurance policies to protect their children, it’s possible that even a moderately wealthy individual who dies unexpectedly could find his or her estate subject to tax once the life insurance policies are included. Just another reason, besides an updated will, to visit your attorney periodically.
