Jones is seriously ill and has $3.4 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 now. 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 $4.7 million? (For all requirements, enter your answers in dollars and not in millions of dollars.) a. Amount of gift tax b. Amount of estate tax savings EXHIBIT 25-1 Unified Transfer Tax Rates* | Plus Not Over $10,000 18% 20,000 20 Tax Base Equal to or Over $ 0 10,000 20,000 40,000 60,000 80,000 40,000 Tentative Tax $ 0 1,800 3,800 8,200 13,000 18,200 of Amount Over $ 0 10,000 20,000 40,000 60,000 80,000 24 26 60,000 80,000 100,000 150,000 28 100,000 23,800 30 100,000 32 150,000 250,000 250,000 500,000 750,000 38,800 70,800 150,000 250,000 34 500,000 37 500,000 155,800 248,300 750,000 1,000,000 39 750,000 1,000,000 1,000,000 345,800 40 *The applicable credit and exemption is zero for estates that opted out of the estate tax in 2010. EXHIBIT 25-2 The Exemption Equivalent Year of Transfer 1986 1987-1997 1998 1999 2000-2001 20022003 2004-2005 20062008 2009-2010* Gift Tax $500,000 600,000 625,000 650,000 675,000 1,000,000 1,000,000 1,000,000 1,000,000 5,000,000 5,120,000 5,250,000 5,340,000 5,430,000 5,450,000 5,490,000 11,180,000 11,400,000 Estate Tax $500,000 600,000 625,000 650,000 675,000 1,000,000 1,500,000 2,000,000 3,500,000 5,000,000 5,120,000 5,250,000 5,340,000 5,430,000 5,450,000 5,490,000 11,180,000 11,400,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 *The applicable credit and exemption is zero for taxpayers who opt out of the estate tax in 2010