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| CALCULATING YOUR ESTATE'S GROWTH When planning your estate, you should look at your estate tax picture in two ways. Of course, you need to calculate the tax on the amount in your taxable estate at the present time. But, you also should calculate the tax on the amount that your estate might be in the future. The number "72" is an arithmetic phenomenon. It quickly tells us our growth pattern. If our assets are growing at a compound rate of 8 percent per year, we divide 8 into 72 and the number produced, 9, tells how many years it takes for our asset to double in value. If we are making 6 percent, it takes 12 years. If we are making 7.2 percent, it takes 10 years. So, if you have an asset that is now worth $100,000 ... and it is growing a 7.2% per year, you will have these values:
Coupled with American's increased life expectancy, the likelihood of some growth in an estate can produce a much larger taxable estate ... and a much larger tax bill. In 1900, a new American baby was expected to live about 47 years; but, now that same child is expected to live over 75 years. A baby girl now has a life expectancy of about 78 years. Some sample life expectancies for American males are:
So, the combination of longer life expectancy ... and the growth of taxable estates ... is creating some very large taxable estates. When planning your estate for tax purposes, keep the likelihood of growth in mind. Many donors have a certain figure in mind for the amount they want their heirs to have. If you have such a figure in mind, you might decide to leave the balance to charity. To do this, you might say, in one of your documents, "All the estate I have in excess of $(some figure), I leave to 'The Foundation'." |
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