To plan your estate sensibly, you need to assess how much property you own. Before you begin, make sure you understand the following legal information.

Understand Legal Basics

For tax purposes, your "estate" generally includes the value of all property in which you have an interest at the time of your death, minus any debts or financial obligations.
As a United States citizen, you may be subject to federal estate tax on the transfer of your property at your death. This tax is generally paid from the estate's assets.
The amount of federal estate taxes incurred by your estate upon your death depends on the size of your estate, the year you die and who inherits your estate.
Depending on the applicable laws of your state, your estate may also be subject to state taxes.
State law usually governs the actual transfer of property to heirs. Verify applicable state laws (in each state where you have property, as well as where you maintain legal residence) for additional estate, inheritance or death taxes that may be imposed on your property.
Generally, property is distributed to your heirs only after the estate has paid all debts including any estate taxes owed.

Property Ownership

What you own depends on state law where you maintain legal residence. States have very similar property ownership rules, except when it comes to married couples.

In common law states, property is owned by the spouse whose name appears in an ownership document.
In most community property states, both spouses equally own most property acquired during their marriage, regardless of the asset's title. This excludes property owned before marriage or received during marriage through inheritances or gifts. Ownership may also depend on matters such as the property's location, the original purchaser and the purchaser's marital status at the time of purchase, who manages the property, and whether divorce is involved.

Federal Estate Tax Exclusion

If the value of your estate is less than the exclusion amount, it is not subject to federal estate tax.

The estate tax phases out completely in 2010.
Unless Congress acts, it will be reinstated in 2011, with an exclusion of only $1 million. Any amount above $1 million will then be subject to federal estate tax.

Giving To Your Spouse

You may leave your entire estate to your spouse without being subject to estate tax through a provision known as the unlimited marital deduction. Keep the following in mind:

If your estate value is more than the current exclusion, you may create a substantial tax burden on your spouse's estate. Creating a trust for your surviving spouse can avoid undue taxation upon your spouse's death.
If your spouse is not a U.S. citizen, different and complex rules apply to property transfer. Consult a professional specializing in property transfer law.

"Gifting" Guidelines

When you give a large gift to anyone other than your spouse, its value is generally added to your estate value at death. Lifetime gifts in excess of $1 million will trigger a gift tax. However, the gift tax annual exclusion amount allows you to reduce your gross estate for federal estate tax purposes by giving "gifts" that do not count against the $1 million limit. By giving during your lifetime, you also ensure that your property goes to individuals you choose and future growth is outside of your estate.

For 2010, you may give annual gifts of up to $13,000 to as many individuals as you want without triggering the gift tax.
Married couples filing jointly can give up to $26,000 to an unlimited number of individuals each year.
You have a lifetime gift tax applicable exclusion amount of $1 million.

Note: Do not give away assets you will need during your lifetime, such as those reserved for emergencies, retirement or long-term care.

Estimate Your Estate's Value

A written inventory and valuation of your property is essential for thorough estate planning. The Calculating The Value Of Your Estate work sheet can help you calculate:

Your approximate total assets (Part I).
Deductions that may affect your final estate value (Part II).
The approximate value of your adjusted taxable estate (Part III).

Consult with an estate planner or financial planning professional to project the actual value of your taxable estate.

Next: Essential Documents

Updated Thursday, May 13, 2010

HELPFUL FORMS & LISTS

Calculating The Value Of Your Estate