Roland had a taxable estate of 7.2 million when he died this year. Calculate the

Question

Roland had a taxable estate of 7.2 million when he died this year. Calculate the amount of estate due under the following alternatives. (Refer to Exhibit 25-1 and 25-2)

A.) Roland's prior taxable gifts consist of a taxable gift of $1 million in 2005.

B.) Roland's prior taxable gifts consist of a taxable gift of $1.5 million in 2005.

C.) Roland made a $1 million taxable gift in the year prior to his death.

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.) Prior Gifts =$ 1 million

Exemption Limit for Gifts in 2005 =$ 1 million

Exemption Limit for Estate in 2005 =$ 1.50 million

Taxable Estate =$7.2 million

Tax Base =$(1-1) + (7.2-1.5) =$5.7 million

Taxes Due =$345,800 + 0.40x(5,700,000-1,000,000) =$345,800 + 1,880,000 =$2,225,800

2.) Prior Gifts =$ 1.50 million

Exemption Limit for Gifts in 2005 =$ 1 million

Exemption Limit for Estate in 2005 =$ 1.50 million

Taxable Estate =$7.2 million

Tax Base =$(1.50-1) + (7.2-1.5) =$6.2 million

Taxes Due =$345,800 + 0.40x(6,200,000-1,000,000) =$345,800 + 2,480,000 =$2,825,000

3.) Prior Gifts =$ 1 million

Exemption Limit for Gifts in 2005 =$ 1 million

Exemption Limit for Estate in 2005 =$ 1.50 million

Taxable Estate =$7.2 million

Tax Base =$(1-1) + (7.2-1.5) =$5.7 million

Taxes Due =$345,800 + 0.40x(5,700,000-1,000,000) =$345,800 + 1,880,000 =$2,225,800

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