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Estate Tax Liability.

Under any other circumstance, you might be pleased as punch to learn you had a much larger estate than you thought you did. But when it comes to estate planning, discovering you underestimated your financial worth can feel like a harsh wind-knocking blow to the midsection.

And in fad, according to many estate planning experts, that is exactly what happens - despite the teams of financial experts and money managers CEOs have gathered to monitor their assets.

"Everybody has a general idea of what their estate is worth, but most people's idea as to what their estate consists of doesn't include things like personal property, investments here and there - especially with CEOs who generally portfolios all over the map," says Scott C. Carr, vice president of marketing at the Preservation Group, a Carlsbad, CA-based firm specializing in estate planning and retirement funding. Carr estimates that most CEOs should tack on an additional 30 percent or 40 percent to their own estimate of their estate size. "We deal with people who have $17 million, $18 million estates on average and they have no idea that they are in this kind of peril." Much of it is millions on paper, adds Carr, "but when the IRS comes knocking, they're going to look at the street value of stocks, securities, things like that, and value the estate based on all of that."

And the tax hit - sans trusts or foundations - an be harsh, as the chart to the left illustrates. To calculate your estate tax liability, first you'll need to have calculated your adjusted gross estate (AGE). Then, based on column 1 and column 2, find the row your AGE falls between. Calculate the taxes from column 3, which is the flat tax for that amount. Then subtract the number in column 1 from your AGE and multiply that figure by the Rate on Excess in column 4. This is your additional tax. Add both the column 3 tax and the additional tax together - and that should give you your tentative federal tax. An estate worth between $10 million and $21,225,000, however, would simply be taxed at a rate of a whopping 60 percent. In addition to that, if you attempt to leave a gift of more than $1 million to your grandchild, that gift gets hit not only with the estate tax, but a generation-skipping tax as well of up to 80 percent. "So you can easily see a $1 million gift reduced to $200,000," says Carr.

It's important to note that the table pictured does not take into account the Taxpayer Relief Act of 1997, which allows you to shelter up to $650,000 of your total assets, translating into a Unified Credit of Roughly $211,000. The amount of the exemption, is scheduled to go up to $1 million by 20036, but your estate is likely growing at a faster clip. We find that a lot of people, their estates are growing by 10 or 20 percent per year, while the Unified Credit is only going up 5 percent per year. All the more reason to get your trusts in place now.
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Publication:Chief Executive (U.S.)
Article Type:Brief Article
Geographic Code:1USA
Date:Oct 1, 1999
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