Under Rowena’s will, Mandy (Rowena’s sister) inherits her property. One year lat

Question

Under Rowena’s will, Mandy (Rowena’s sister) inherits her property. One year later, Mandy dies. Based on the following independent assumptions, what is Mandy’s credit for the tax on prior transfers?

a. The estate tax attributable to the inclusion of the property in Rowena’s gross estate is $700,000, and the estate tax attributable to the inclusion of the property in Mandy’s gross estate is $800,000.

b. The estate tax attributable to the inclusion of the property in Rowena’s gross estate is $1.2 million, and the estate tax attributable to the inclusion of the prop- erty in Mandy’s gross estate is $1.1 million.

c. Express your computations for parts (a) and (b) as Excel commands.

d. Would your answers to parts (a) and (b) change if Mandy died seven years (rather than one year) after Rowena?

Explanation / Answer

a) Since there is a difference between the estate tax attributable to the inclusion of the property for the gross estate of both the person, the credit would be Mandy’s gross estate minus Rowena’s gross estate.

So, the tax credit on prior transfer = $800,000 - $700,000 = $100,000

b) Since there is a difference between the estate tax attributable to the inclusion of the property for the gross estate of both the person, the credit would be Mandy’s gross estate minus Rowena’s gross estate with 100% credit, if the person dies within 2 years of inheritance.

So, the tax credit on prior transfer = $1,100,000 - $1,200,000 = -$100,000

d) Yes. As per IRS rules, if person dies after six years and within seven and eight years, the tax credit would be only 40% of the difference.

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