94%(174)164 out of 174 people found this document helpful
This preview shows page 19 - 22 out of 23 pages.
c.Estimate the amount of estate tax due if Hank were to die within three years of transferring the insurance policy. At the time of his death, Hank estimates he will have a probate estate of $10 million to be divided in equal shares between his two children.a.Total 2006 gift of life insurance policy$ 50,0002006 annual exclusions($12,000 per donee)- 24,000Current taxable gifts$ 26,000Prior taxable gifts+ 1,500,000Cumulative gifts$ 1,526,000Tax on cumulative gifts$ 567,500less Current tax on prior taxable gifts- 555,800Tax on current taxable gifts$ 11,700Unified credit in 2005$ 345,800less Unified credit used previously- 345,800Unused unified credit- 0Gift tax due in 2006$ 11,700b.Adjusted taxable gifts$ 1,526,000Taxable estate+ 10,000,000Cumulative taxable transfers$ 11,526,000Tax on cumulative transfers$ 5,067,500Gift taxes paidin 2005-06($555,800-$345,800 + $11,700)- 221,700Tax on taxable estate$ 4,845,800Unified credit in 2010- 1,455,800Estimated estate tax due$ 3,390,000c.Adjusted taxable gifts$ 1,500,000Life insurance policy+ 400,000Gift tax paid in 2006+ 11,700Taxable estate+ 10,000,000Cumulative taxable transfers$ 11,911,700Tax on cumulative transfers$ 5,241,065Gift taxes paidin 2005 & 2006- 221,700Tax on taxable estate$ 5,019,365Unified credit in 2010- 1,455,800Estimated estate tax due in 2010$ 3,563,56514-19
Chapter 14 - Transfer Taxes and Wealth Planning64.Jack made his first taxable gift of $1,000,000 in 1997, at which time the unified credit was $192,800. Jack made no further gifts until 2005, at which time he gave $250,000 each to his three children and an additional $100,000 to State University (a charity). The annual exclusion in 2005 was $11,000. Recently Jack has been in poor health and would like you to estimate his estate tax should he die this year. He estimates his taxable estate (after deductions) will be worth $5.4 million at his death. Assume Jack is single and has paid the proper amounts of tax in past years.The solution proceeds in three steps with the calculation of the gift taxes in 1997 and 2005 followed by the calculation of the estate tax in 2010.1997:Jack made his first taxable gift of $1,000,000 in 1997 at which time the unified credit was $192,800. If Jack had not previously made any taxable gifts, the cumulative tax would be $345,800, and after application of the unified credit, Jack would owe a gift tax of $153,000 calculated as follows:Current taxable gift (after exclusion)$ 1,000,000Prior taxable gifts0Cumulative taxable gifts$ 1,000,000Tax on cumulative gifts$ 345,800Current tax on prior taxable gifts- 0Tax on current taxable gifts$ 345,800Unified credit in 1997$ 192,800Unified credit used previously- 0Unused unified credit- 192,800Gift tax due in 1997$ 153,0002005:Jack calculates his gift tax as follows:14-20
Chapter 14 - Transfer Taxes and Wealth PlanningTotal gifts$ 850,000Annual exclusion($11,000 per donee in 2005)- 44,000Charitable deduction ($100K - $11K exclusion)- 89,000- 133,000Current taxable gifts$ 717,000Prior taxable gifts1,000,000Cumulative taxable gifts$ 1,717,000Tax on cumulative gifts$ 653,450Current tax on prior taxable gifts- 345,800Tax on current taxable gifts$ 307,650Unified credit in 2005$ 345,800Unified credit used previously- 192,800Unused unified credit- 153,000Gift tax due in 2005$ 154,6502010:After paying gift taxes of $153,000 in 1997 and $154,650 in 2005, Jack estimates that his taxable estate (after deductions) will be worth $5.4 million in 2010. An estimate of the estate tax for 2010 is calculated as follows:Adjusted taxable gifts$ 1,717,000Taxable estate+ 5,400,000