c Estimate the amount of estate tax due if Hank were to die within three years

C estimate the amount of estate tax due if hank were

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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 $ 50,000 2006 annual exclusions ($12,000 per donee) - 24,000 Current taxable gifts $ 26,000 Prior taxable gifts + 1,500,000 Cumulative gifts $ 1,526,000 Tax on cumulative gifts $ 567,500 less Current tax on prior taxable gifts - 555,800 Tax on current taxable gifts $ 11,700 Unified credit in 2005 $ 345,800 less Unified credit used previously - 345,800 Unused unified credit - 0 Gift tax due in 2006 $ 11,700 b. Adjusted taxable gifts $ 1,526,000 Taxable estate + 10,000,000 Cumulative taxable transfers $ 11,526,000 Tax on cumulative transfers $ 5,067,500 Gift taxes paid in 2005-06 ($555,800-$345,800 + $11,700) - 221,700 Tax on taxable estate $ 4,845,800 Unified credit in 2010 - 1,455,800 Estimated estate tax due $ 3,390,000 c. Adjusted taxable gifts $ 1,500,000 Life insurance policy + 400,000 Gift tax paid in 2006 + 11,700 Taxable estate + 10,000,000 Cumulative taxable transfers $ 11,911,700 Tax on cumulative transfers $ 5,241,065 Gift taxes paid in 2005 & 2006 - 221,700 Tax on taxable estate $ 5,019,365 Unified credit in 2010 - 1,455,800 Estimated estate tax due in 2010 $ 3,563,565 14-19
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Chapter 14 - Transfer Taxes and Wealth Planning 64. 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) $ 1,000,000 Prior taxable gifts 0 Cumulative taxable gifts $ 1,000,000 Tax on cumulative gifts $ 345,800 Current tax on prior taxable gifts - 0 Tax on current taxable gifts $ 345,800 Unified credit in 1997 $ 192,800 Unified credit used previously - 0 Unused unified credit - 192,800 Gift tax due in 1997 $ 153,000 2005: Jack calculates his gift tax as follows: 14-20
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Chapter 14 - Transfer Taxes and Wealth Planning Total gifts $ 850,000 Annual exclusion ($11,000 per donee in 2005) - 44,000 Charitable deduction ($100K - $11K exclusion) - 89,000 - 133,000 Current taxable gifts $ 717,000 Prior taxable gifts 1,000,000 Cumulative taxable gifts $ 1,717,000 Tax on cumulative gifts $ 653,450 Current tax on prior taxable gifts - 345,800 Tax on current taxable gifts $ 307,650 Unified credit in 2005 $ 345,800 Unified credit used previously - 192,800 Unused unified credit - 153,000 Gift tax due in 2005 $ 154,650 2010: 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 $ 1,717,000 Taxable estate + 5,400,000
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