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

Question

ack 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 $1,750,000 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 $5.4 million at his death. (Refer to Exhibit 25-1 and Exhibit 25-2.)

   

Explanation / Answer

Computation of Cumulative taxable transfers :

Next it is necessary to calculate the amount of credit for prior taxable transfers. The 2008 transfer was offset by Jack’s unified credit ($1 million exemption equivalent) but only $2.5 million of the taxable transfer in 2009 was offset by the remaining unified credit. Hence, Jack made a $2.711 taxable transfer in 2009 ($5.211 - $2.5 million).

The credit for prior taxable transfers is calculated using the current rate schedule as follows :

Calulation of estate tax proceeds :

Particulars Amount in $ Gross estate 54,00,000 Prior taxable transfers (2008) 10,00,000 Prior taxable transfers ($1,750,000 $13,000 × 3) 52,11,000 Cumulative taxable transfers 116,11,000

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