Legacy/Inheritance Goal Calculator

When planning your legacy, understanding the tax landscape is crucial. A significant portion of a large estate can be lost to taxes if not planned for properly. The primary hurdle at the federal level is the estate tax, though some states have their own estate or inheritance taxes.

The 2026 "Tax Sunset" Warning

A critical factor in long-term legacy planning is the scheduled "sunset" of the current high estate tax exemption. The Tax Cuts and Jobs Act of 2017 nearly doubled the exemption, but this provision is set to expire at the end of 2025. If Congress does not act, the exemption will revert to its pre-2018 level, which would be around $7 million per person in 2026 after inflation adjustments. This makes strategic planning, such as using trusts or lifetime gifting, even more important for those with estates near or above this lower threshold.

While this calculator focuses on the federal exemption, remember that twelve states and the District of Columbia also levy an estate tax, and six states have an inheritance tax (paid by the heir). You can explore these local rules with our inheritance tax calculator by state.

Calculating your goal is the first step; building the fund to meet it requires a dedicated strategy. A legacy fund is not just a retirement account—it's a pool of capital with a multi-generational time horizon. This unique purpose influences how you should save and invest.

1. The Power of Compounding The longer your time horizon, the more powerful compounding becomes. As the calculator's charts illustrate, investment growth often overtakes total contributions as the primary driver of your final legacy amount. Starting early, even with small annual contributions, can lead to a surprisingly large sum over several decades. For example, contributing $5,000 annually for 40 years with a 7% return can grow to over $1 million, with nearly 80% of that total coming from investment growth.

2. Choosing the Right Accounts While you can use any account for a legacy, some are more effective than others:

• Taxable Brokerage Accounts: These are highly flexible and benefit from the "step-up in basis" at death. This means your heirs inherit the assets at their market value on your date of death, wiping out any capital gains tax liability on the appreciation that occurred during your lifetime.
• Roth IRAs: Heirs inherit Roth IRAs tax-free. While they must still empty the account (typically within 10 years for non-spouse beneficiaries), they won't owe any income tax on the withdrawals. You can model contributions with an IRA calculator.
• Trusts: For larger estates or more complex wishes, a trust is an essential tool. It provides control over how and when assets are distributed and can be structured to minimize estate taxes. An Irrevocable Life Insurance Trust (ILIT) is a common strategy to provide tax-free liquidity to heirs.

3. Aligning Your Investment Strategy Your investment approach should reflect the fund's long-term nature.

• Long Time Horizon (20+ years): A growth-oriented portfolio, heavily weighted towards equities, is often appropriate. The goal is to maximize growth, and there is ample time to recover from market downturns.
• Shorter Time Horizon (less than 10 years): As you approach your life expectancy, you might gradually shift to a more balanced or conservative allocation to protect the principal you've accumulated. This reduces the risk of a major market drop significantly impacting the final inheritance amount.

The key is to treat the legacy fund as a distinct portfolio with its own goal, separate from the funds you need to live on in retirement. This helps ensure you can meet your own needs while still preserving your intended bequest. See how different strategies might affect your own retirement with our how long will my money last calculator.

The amount you leave is not always the amount your heirs receive. Beyond the estate tax for very large estates, the type of account you leave behind determines the income tax consequences for your beneficiaries. Understanding these differences is key to maximizing what your loved ones actually get to keep.

The SECURE Act of 2019 largely eliminated the "stretch IRA," which allowed beneficiaries to stretch distributions (and tax payments) over their own lifetimes. Now, most non-spouse beneficiaries must empty inherited IRAs and 401(k)s within 10 years of the original owner's death. This can create a significant tax burden, pushing beneficiaries into higher tax brackets during those 10 years. This rule makes Roth accounts even more valuable as a legacy tool, as the 10-year rule still applies, but the withdrawals are tax-free. Planning your own retirement withdrawal calculator strategy should account for these downstream effects.

The calculator uses established financial formulas to project the future value of your legacy fund and determine what it takes to reach your goal. Here are the core calculations at work:

The growth of your legacy fund is projected year by year. Each year, the balance increases from investment returns and new contributions.

Next Year Balance = (Current Balance × (1 + Annual Return Rate)) + Annual Contribution

Where:

• Current Balance = The value of the legacy fund at the start of the year.
• Annual Return Rate = Your expected investment return, expressed as a decimal.
• Annual Contribution = The amount you add to the fund during the year.

If your current plan falls short of your desired legacy, the calculator determines the annual contribution needed to close the gap using the future value of an annuity formula.

Required Annual Contribution = (Future Value Gap × Rate) / ((1 + Rate)^Years - 1)

Where:

• Future Value Gap = The difference between your desired legacy and the projected growth of your current savings alone.
• Rate = Your expected annual investment return as a decimal.
• Years = The number of years until your life expectancy.

For estates that exceed the federal threshold, the potential estate tax is calculated simply.

Estimated Estate Tax = (Projected Legacy - Estate Tax Threshold) × Estate Tax Rate

Where:

• Projected Legacy = The final estimated value of your legacy fund.
• Estate Tax Threshold = The federal exemption amount (e.g., $14,000,000).
• Estate Tax Rate = The federal rate applied to the excess amount (currently 40%).

What is a legacy fund?

A legacy fund is a specific pool of money or assets set aside with the express purpose of being passed on to heirs, a charity, or another beneficiary after your death. It is distinct from a retirement fund, which is intended to cover your own living expenses during your retirement years.

What is the federal estate tax exemption in 2026?

The federal estate tax exemption for 2026 is projected to be approximately $14.0 million per individual. This amount is indexed for inflation. However, it is scheduled to be cut roughly in half in 2026 unless Congress extends current law.

Is it better to gift money now or leave it as an inheritance?

It depends on your goals and the size of your estate. Gifting during your lifetime allows you to see the impact of your gift and can reduce the size of your taxable estate. Leaving an inheritance can provide a larger lump sum and allows assets like stocks to receive a step-up in basis, which is a major tax benefit. Consult an estate planning professional to weigh the pros and cons for your situation.

How is an inheritance taxed for the person receiving it?

In most cases, the recipient of an inheritance does not pay taxes on it. Any federal estate tax is paid by the estate itself before assets are distributed. The main exception is inheriting tax-deferred retirement accounts like a Traditional IRA, where the beneficiary pays ordinary income tax on withdrawals. Some states also have an inheritance tax paid by the heir.

What's the difference between an estate plan and a legacy plan?

An estate plan is the legal and financial framework for managing your assets during your life and distributing them at death (e.g., will, trust, power of attorney). A legacy plan is a broader concept that includes your estate plan but also incorporates your values, stories, and the non-financial impact you want to leave on your family and community.

Can I use a life insurance policy for my legacy goal?

Absolutely. A life insurance policy, particularly when held in an Irrevocable Life Insurance Trust (ILIT), can be a very effective legacy tool. The death benefit is typically paid out income-tax-free and, if structured correctly, can also be free from estate taxes, providing immediate liquidity for your heirs.

How does inflation affect my legacy goal?

Inflation erodes the purchasing power of money over time. A $1 million legacy goal set today will buy significantly less in 30 years. The calculator shows you both the nominal (actual dollar) value and the real (inflation-adjusted) value of your future legacy to help you set a more meaningful target.

Using this calculator gives you a powerful financial projection for your legacy. The next step is to integrate this goal into a comprehensive plan. Define what you want your legacy to achieve, and consider consulting with a financial advisor and estate planning attorney to create the legal structures, like a will or trust, to ensure your wishes are carried out efficiently.

Explore related tools to refine your overall financial picture. Determine your safe withdrawal rate for your own retirement needs, calculate your total retirement number, and see if you meet your employer's pension eligibility requirements to understand all the pieces of your financial life.

Last updated: July 2026