IRA Beneficiary
27. Determining Your Net Estate
Estate taxes are calculated on the net value of your estate when you die. To determine the current net value of your estate, add your assets, then subtract your debts. As this chart shows, include your home, business interests, bank accounts, investments, personal property, IRAs, retirement plans, and the death benefits from your life insurance.
Let's say you die when the estate tax exemption is $1 million, as it is currently scheduled to be in 2011. If your net estate is less than this, your estate will not have to pay any estate taxes. But if your net estate is more than $1 million, every dollar over this amount will be taxed...and the estate tax in 2011 quickly reaches the top rate of 55%.
Some married couples have tried to avoid estate taxes by leaving everything to their spouses when they die. Historically, as long as your spouse was a U.S. citizen, you could leave your entire estate to your spouse and pay no estate taxes at your death. This is called the "unlimited marital deduction."
In 2010, when there is no estate tax, the marital deduction doesn't exist, either. But, considering both will probably be coming back in 2011, let's look at how it works.