Jones is seriously ill and has $5 million of property that he wants to leave to

Question

Jones is seriously ill and has $5 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Assuming any taxable transfer will be subject to the highest transfer tax rate. (Refer to Exhibit 25-1 and Exhibit 25-2.) Required a. Determine how much gift tax Jones will owe if he makes the transfers novw b. If he makes a current gift, how much estate tax will Jones save if he dies after three years, during which time the property appreciates to $5.5 million? (Enter your answers in dollars and not in millions of dollars.) a. Amount of gift tax b. Amount of estate tax savings

Explanation / Answer

Gift tax for Jones:

Lifetime Gift Tax Exemption

Everyone is entitled to claim a lifetime gift tax exemption, from which the value of otherwise taxable gifts may be deducted, until the exemption is used up.

Also referred to as the “unified credit” the lifetime gift tax exemption, which is $5.34 million which is the lifetime total exemption from paying taxes on gift and estate taxes.

To determine how much of the lifetime gift tax exemption an individual can claim, begin by subtracting the taxable amount of he gift, which is the value over the annual exclusion, then subtract that amount from the lifetime gift tax exemption total.

Gift tax for Julie:

If the annual income of the tax payer is nil the amount of capital gain is also nil from the question since no annual income is given hence her taxable gain is also nil.

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