Alternative 1 Alternative 2 no bypass bypass Maudes Gross estate 10000000

# Alternative 1 alternative 2 no bypass bypass maudes

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Alternative 1 Alternative 2 no bypass bypass Maude’s Gross estate \$ 10,000,000 \$ 10,000,000 Marital deduction - 10,000,000 - 6,000,000 Taxable transfer \$ 0 \$ 4,000,000 Maude’s estate tax (2010) 0 \$ 1,680,800 Unified credit (2010) - 0 - 1,455,800 Estate tax on Maude \$ 0 \$ 225,000 Harold’s taxable estate \$ 10,000,000 \$ 6,000,000 Harold’s estate tax (2010) \$ 4,380,800 \$ 2,580,800 Unified credit (2010) - 1,455,800 - 1,455,800 Estate tax on Harold \$ 2,925,000 \$ 1,125,000 Estate tax on Maude + 225,000 Total Estate tax \$ 2,925,000 \$ 1,350,000 14-17
Chapter 14 - Transfer Taxes and Wealth Planning Total estate savings (\$3.5 million*45%) \$ 1,575,000 COMPREHENSIVE PROBLEMS 62. {Planning} Suppose Vince dies this year with a gross estate of \$15 million and no adjusted prior gifts. Calculate the amount of estate tax due (if any) under the following alternative conditions. a. Vince leaves his entire estate to his spouse, Millie. b. Vince leaves \$10 million to Millie and the remainder to charity. c. Vince leaves \$10 million to Millie and the remainder to his son, Paul. d. Vince leaves \$10 million to Millie and the remainder to a trust whose trustee is required to pay income to Millie for her life and the remainder to Paul. a. If all the property in Vince’s estate qualifies for the marital deduction, then there would be no taxable estate and there would be no estate tax due upon Vince’s death. Note that if Millie dies with a taxable estate of \$15 million, she would owe an estate tax of \$5.175 million {(\$15M - \$3.5M exemption equivalent) x .45} (ignoring the potential for a credit on proximate deaths should Millie die within 10 years of Vince’s death as well as differences in valuation and the effects of consumption over the interim between the deaths of Vince and Millie). b. Once again, if the property left to Millie qualifies for the marital deduction and if the property bequeathed to charity qualifies for the charitable deduction, then there would be no taxable estate and there would be no estate tax due upon Vince’s death. c. Assuming that the property left to Millie qualifies for the marital deduction, the calculation of the estate tax would proceed as follows: Gross estate \$ 15,000,000 Marital deduction - 10,000,000 Taxable estate and cumulative transfers \$ 5,000,000 Tax on cumulative transfers \$ 2,130,800 Unified credit (2010) - 1,455,800 Estimated estate tax due \$ 675,000 d. The solution is identical to (3) above because the amount left in trust is a terminable interest that would not qualify for a marital deduction. 63. Hank possessed a life insurance policy worth \$50,000 that will pay his two children a total of \$400,000 upon his death. In 2006 Hank transferred the policy and all incidents of ownership to an irrevocable trust that pays income annually to his two children for 15 years and then distributes the corpus to the children in equal shares. a. Calculate the amount of gift tax due (if any) on the 2006 gift, given Hank has made only one prior taxable gift of \$1.5 million in 2005. 14-18
Chapter 14 - Transfer Taxes and Wealth Planning b. Estimate the amount of estate tax due if Hank were to die more than three years after 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.