hapter 15 inancial Planning Exercise 9 Calculating federal transfer tax on estate yan Cook died in 2018, leaving an estate of $27 million, Ryan's wife, Isabella, died in 2015. In 2013, Ryan gave his son, Aiden, property that resulted in a axable gift of $3.5 million and upon which Ryan paid $1,032,500 in transfer taxes. Ryan had made no other taxable gifts during his life. His will provided a Charitable bequest of $2.5 million to his church. Determine the federal transfer tax on Ryan's estate. Use Worksheet 15.1. Exhibit 15.7, and Exhibit 15,8. Round your answer to nearest whole dollar. Enter O, if the answer is zero. $ B3 B D E F G H VON 1 2 3 Name COMPUTING FEDERAL ESTATE TAX DUE Date 6 Line Computation Item Amount Total Amount 8 1 Gross estate $ 2 Subtract sum of (a) Funeral expenses S 10 TE 12 23 14 (b) Administrative expenses (c) Debts 16 (d) Other expenses 18 Total 3 $ Result Adjusted gross estate Subtract sum of: (a) Marital deduction 4 22 20 24 (b) Charitable deduction br8-waggggsm 26 Total 28 5 Result Taxable estate $ 30 6 Add: Adjusted taxable gifs (post-1976) S 32 7 Result Estate tax bose S 34 8 Compute Tentative tax on estore tax base S 36 9 Subtract sum of: (a) Gift tax payable on S 37 post-1976 gifts 39 {b) Unified tax credit Total 45 10 Result Total estote taxes 45 11 Subtract Other credits (5 47 12 Result Federal estate tax due S 48 49 Use Exhibe 15 to osloulate the tentative Last So use Ext 15 to determine the appropriate united credit Wote that the amount shown on line 7 is a significant number because most states use the same estate base asis 51 used or the federal IS 53 55 56 ws_15.2 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Amount-Estates $2,000,000 $3,500,000 Unified Tax Year Credit-Estates 2008 $780,800 2009 $1,455,800 2010 Estate tax repealed for 2010 2011 $1,730,800 2012 $1,772,800 2013 $2,045,800 2014 $2,081,800 2015 $2,117,800 2016 $2,125,800 2017 $2,141,800 2018 $4,417,800 Source: Internal Revenue Service $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 $2.117800 $2,125,800 $2,141,800 $4,417,800 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 h 55,430,000 $5,340,000 $5,490,000 $11,180,000 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 $10,000 $ 0 10,000 20,000 1,800 20% $ 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 60,000 80,000 100,000 18,200 28 80,000 100,000 150,000 23,800 30 100,000 150,000 250,000 38,800 32 150,000 250,000 500,000 70,800 34 250,000 500,000 750,000 155,000 500,000 750,000 1,000,000 248,300 39 750,000 1,000,000 345,800 1,000,000 26 37 40 Source nemal Revenue Code Section 2001