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Cumulative transfers$ 7,117,000Tax on cumulative transfers$ 3,083,450Gift taxes paid- 307,650Tax on taxable estate$ 2,775,800Unified credit in 2010- 1,455,800Estimated estate tax due$ 1,320,00065.Montgomery has decided to engage in wealth planning and has listed the value of his assets below. The life insurance has a cash surrender value of $120,000 and the proceeds are payable to Montgomery’s estate. The trust is an irrevocable trust created by Montgomery’s brother 10 years ago and contains assets currently valued at $800,000. The income from the trust is payable to Montgomery’s faithful butler, Walen, for his life, and the remainder is payable to Montgomery or his estate. Walen is currently 37 years old and the §7520 interest rate is currently 5.4 percent. Montgomery is unmarried and plans to leave all his assets to his surviving relatives.14-21
Chapter 14 - Transfer Taxes and Wealth PlanningPropertyValueAdjusted BasisAuto$ 20,000$ 55,000Personal effects75,000110,000Checking and savings accounts250,000250,000Investments2,500,000770,000Residence1,400,000980,000Life insurance proceeds1,000,00050,000Real estate investments5,125,0002,800,000Trust800,00080,000a.Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts.b.Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $1 million, and Montgomery used his unified credit to avoid paying any gift tax. c.Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $1 million, and Montgomery used his unified credit to avoid paying any gift tax. Montgomery plans to bequeath his investments to charity and leave his remaining assets to his surviving relatives. Each part of the solution will need to determine the value of Montgomery’s estate. Montgomery’s estate includes the fair value (the adjusted basis of the assets is irrelevant) of all of his assets exceptthe trust because Montgomery only owns a remainder interest in the trust at his death. Hence, only the value of the remainder is included in his estate. The remainder is valued by identifying the discount factor given the §7520 interest rate (5.4%) and the age of the life tenant (37 years). The value ($123,600) is obtained by multiplying the discount factor (0.1545 from Exhibit 25-4) times the value of the trust assets ($800,000). Hence, the value of Montgomery’s estate is calculated as follows:Auto$20,000 Personal effects75,000Checking and savings accounts250,000Investments2,500,000Residence1,400,000Life insurance proceeds1,000,000Real estate investments5,125,000Trust ($800,000x.1545)123,600Value of estate at date of death$10,493,60014-22
Chapter 14 - Transfer Taxes and Wealth Planninga.Montgomery’s estate would owe $3,147,120 if he dies in 2010 calculated as follows:Adjusted taxable gifts$ 0Taxable estate + 10,493,600Cumulative taxable transfers$ 10,493,600Tax on cumulative transfers$ 4,602,920Gift taxes paid- 0Tax on taxable estate$ 4,602,920Unified credit in 2010- 1,455,800Estimated estate tax due in 2010$ 3,147,120b.Montgomery’s estate would owe $3,597,120 if he dies in 2010 calculated as follows:Adjusted taxable gifts$ 1,000,000Taxable estate + 10,493,600
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Taxes, Taxation in the United States, taxable gifts, unified credit