National Tax Week 4 Problem Solutions

National Tax Week 4 Problem Solutions - Chapter22...

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Chapter 22 Estate Tax v. Inheritance Tax 1. An estate tax is levied on the estate and is a tax on the transfer of property. An inheritance tax is levied on the heir and is a tax on the receipt of property. Estate Tax Base 2. The estate tax base equals the sum of the taxable estate and adjusted taxable gifts made after 1976. Applicable Credit Amount 3. The applicable credit amount is $1,455,800 and corresponds to an exemption from the estate tax of $3.5 million. During the individual’s lifetime its only purpose is to determine if any gift tax is currently payable. Once adjusted taxable gifts on a cumulative lifetime basis exceed $1,000,000, a gift tax is due since, at that point, the applicable credit amount would be exhausted for gift tax purposes. Gross Estate v. Probate Estate 4. Many items not subject to probate may be includible in the gross estate, such as life insurance payable to a named benefi ciary and jointly held property. Gross Estate: Estate Tax Liability Computation 5. Gross estate $3,580,000 Less: Administration expenses 60,000 Taxable estate $3,520,000 Plus: Adjusted taxable gifts 20,000 Estate tax base $3,540,000 Tentative tax (Code Sec. 2001): Tax on $3,500,000 $1,455,800 Plus: 45% of $40,000 18,000 $1,473,800 Less: Applicable credit amount 1,455,800 Estate tax payable $ 18,000 Qualifi ed Terminable Interest Property Trusts 15. A QTIP trust qualifi es for the marital deduction by election even though the surviving spouse may have only an income interest for life. The disadvantage is that the full value of the trust is includible in the estate of the surviving spouse. Charitable Deduction: Income v. Estate Tax 16. The estate tax value of all charitable gifts included in the gross estate is deductible in full without percentage limitations as is the case for the income tax deduction. Unitrust v. Annuity Trust 17. Unitrust : Payout must be a fi xed percentage (at least 5 percent) of the annual value. The remainder is valued using this rate as the discount rate.
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Annuity trust : Payout is at least 5 percent of initial value. To value the remainder a 10 percent rate is used. Disclaimers 18. The disclaimant is not subject to any transfer tax. Disclaimants 19. The disclaimant still has nine months to disclaim. Defi nition of Gift 20. A gift is a transfer of property for less than full and adequate consideration in money or money’s worth. Net Gift 21. In a “net gift” situation, the gift is subject to the donee’s obligation to pay any gift tax due. Gift-Splitting 22. Two sets of exclusions and applicable credit amounts are available. Estate Tax Liability 25. Taxable estate $3,800,000 Adjusted taxable gifts after 1976 100,000 Estate tax base $3,900,000 Tentative estate tax Tax on $3,500,000 $1,4550,800 Plus: 45% of $400,000 180,000 $1,635,800 Less: Gift taxes paid 0 Applicable credit amount $1,455,800 1,455,800 Estate tax payable $180,000 The gift tax credit is based on the gift tax payable, which means the gift tax determined under current rate
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This note was uploaded on 11/22/2011 for the course ACC 432B taught by Professor Wolod during the Fall '11 term at National.

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National Tax Week 4 Problem Solutions - Chapter22...

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