Jack is single and he made his first taxable gift of $1,000,000 in 2008. Jack ma

Question

Jack is single and he made his first taxable gift of $1,000,000 in 2008. Jack made additional gifts in 2009, at which time he gave $1,800,000 to each of his three children and an additional $1,000,000 to State University (a charity). The annual exclusion in 2009 was $13,000. Recently Jack has been in poor health and would like you to estimate his estate tax should he die this year. Jack estimates his taxable estate (after deductions) will be worth $5.65 million at his death. (Refer to Exhibit 25-1 and Exhibit 25-2.) (Enter your answers in dollars and not in millions of dollars.)

Estate tax EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over of Amount Over Tentative Not Over Tax Plus 0 10.000|$ 0 |18% |$ 20,000 40,000 0 10,000 20,000 40,000 1,80020 3,800 22 8.200 24 13,000 26 18,200 28 23.800 30 38,800 32 70,800 34 155,800 37 248,30039 345,800 40 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 60.000 60.000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 The applicable credit and exemption is zero for taxpayers who opt out of the estate tax in 2010

Explanation / Answer

1 Estimated Cumulative taxable transfer of Jack Gross Estate $5,650,000 Taxable gift in 2008 $1,000,000 Addittional gift in 2009 ($1800000 - $13000 x 3) $5,361,000 Cumulative taxable transfer $12,011,000 Amount of credit for prior taxable gift Taxable gift in 2008 $1,000,000 Less: Unified Credit $1,000,000 Taxable gift $0 Taxable gift in 2009 $5,361,000 Less: Unified credit (3500000-1000000) $2,500,000 Taxable gift in 2009 $2,861,000 The credit for prior taxable transfers is calculated using the current rate schedule as follows: Tax on taxable transfer ($6.361 million) $2,490,200 less: unified credit ($3.5million) $1,345,800 Credit for current tax on prior taxable gift $1,144,400 Calculation of estate tax proceeds Tax on cumulative taxable transfer (12.011 million) $4,750,200 Less: credit available for current tax $1,144,400 Tax on taxable estate $3,605,800 Less: Unified Credit (5.49 million) $2,141,800 Estate tax due $1,464,000

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