Chapter 15 Financial Planning Exercise 9 Calculating federal transfer tax on estate Ryan Cook died in 2018, leaving an estate of $25,5 million, Ryan's wife, Isabella, died in 2015. In 2013, Ryan gave his son, Aiden, property that resulted in a taxable gift of $2.5 million and ypon which Ryan paid $737,500 in transfer taxes. Ryan had made no other taxable gifts during his life. His will provided a charitable bequest of $1 million to his church. Determine the federal transfer tax on Ryan's estate. Use Worksheet 15.1. Exhibit 15.7, and Exhibit 15,0. Round your answer to nearest whole dollar. Enter of the answer is zero. $ NH COMPUTING FEDERAL ESTATE TAX DUE 2 3 Name Date Line Computation Item 6 1 8 Amount Total Amount 1 Gross estate 2 Subtract sum of: (a) Funeral expenses 10 11 12 13 14 (b) Administrative expenses (c) Debts 16 (d) Other expenses Total 18 1 20 2 22 3 Result: Adjusted gross estate $ 4 Subtract sum of: (a) Marital deduction (b) Charitable deduction 24 26 Total 5 Result: Taxable estate 28 29 30 $ 6 Add Adjusted taxoble gifts (post-1976) 32 JJ 7 Result: Estate tax base S w (S 34 8 Compute: Tentative tax on estate tax base" 36 9 Subtract sum of: (a) Gift tax payable on 37 JO post-1976 gifts 39 (b) Unified tax credit 41 Total 43 10 Result Total estate taxes 45 Subtract: Other credits 0 47 12 Result Federal estate tax due S 48 49 "Use Exhibit 15.8 to caloulate the tentative tax 50 "Use Exhibit 15.7 to determine the appropriate unified credit. "Note that the amount shown on line 7 is a significant number, because most states use the same estate tax base as is 51 used for the federalta 52 53 (S EXHIBIT 15.7 Unified Credits and Applicable Exclusion Amounts for Estates and Gifts On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law. The major features of the Act were to make the estate tax rate 40 percent, to make the annual adjustment to the applicable exclusion amount permanent, and to make the portability of the unified transfer tax credit permanent. The Tax Cut and Jobs Act of 2017 increased the applicable exclusion amount to $11,180,000. This table shows the recent history of the unified credits and applicable exclusion amounts. Applicable Exclusion Amount-Estates $2,000,000 $3,500,000 Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Unified Tax Credit-Estates $780,800 $1,455,800 Estate tax repealed for 2010 $1,730,800 $1,772,800 $2,045,800 $2,081,800 $2,117,800 $2,125,800 $2,141,800 $4,417,800 $5,000,000 $5,120,000 $5,250,000 $5,340,000 $5,430,000 $5,340,000 $5,490,000 $11,180,000 Unified Tax Credit-Gifts $345,800 $345,800 $330,800 $1,730,800 $1,772,800 $2,045,800 $2,081,800 $2,112,800 $2,125,800 $2.141,800 $4,417800 Applicable Exclusion Amount-Gifts $1,000,000 $1,000,000 $1,000,000 $5,000,000 $5,120,000 $5,250,000 $5,340,000 $5,430,000 $5,340,000 $5,490,000 $11,180,000 Source: Internal Revenue Service EXHIBIT 15.8 Federal Unified Transfer Tax Rates This unified rate schedule defines the amount of federal gift and estate taxes that estates of various sizes would have to pay, it incorporates the rates passed in the American Taxpayer Relief Act of 2012, signed into law on January 2, 2013. Estates and gifts under the exclusion amount pay no federal tax. The estate exclusion amount increased annually from $2,000,000 in 2006 to $11,180,000 in 2018 (see Exhibit 15.6). From 2009 to 2018, the top tax rates decreased from 45 percent to 40 percent. TAXABLE ESTATE VALUE TENTATIVE TAX More Than But Not More Than Base Amount + Percent On Excess Over 0 s 10,000 $ 0 10,000 20,000 1.800 20% s 10,000 20,000 40,000 3,800 22 20,000 40,000 60,000 8,200 24 40,000 60,000 80,000 13,000 26 80,000 80,000 100,000 18,200 28 B0,000 100,000 150,000 23,800 30 100,000 150,000 250,000 38,800 32 150,000 250,000 500,000 70.800 34 250,000 750,000 500,000 155,000 37 500,000 1,000,000 750,000 248,300 39 750,000 345,800 40 1,000,000 1,000,000 Source Internal Revenue Code, Section 2001