Montgomery has decided to engage in wealth planning and has listed the value of his assets below. The life insurance has a cash surrender value of $148,000 and the proceeds are payable to Montgomery's estate. The Walen Trust is an irrevocable trust created by Montgomery's brother 10 years ago and contains assets currently valued at $800,000. The income from the trust is payable to Montgomery's faithful butler, Walen, for his life, and the remainder is payable to Montgomery or his estate. Walen is currently 37 vears old and the $7520 interest rate is currently 5.4 percent. Montgomery is unmarried and plans to leave all his assets to his surviving relatives. (Refer to Exhibit 25-1, Exhibit 25-2 and Exhibit 25-4.) Property Auto Personal effects Checking and savings accounts Investments Residence Life insurance proceeds Real estate investments Walen Trust Value $ 34,000 $ 89,000 $ 278,000 $ 2,570,000 $ 1,470,000 $ 1,070,000 $10,195,000 $ 800,000 Adjusted Basis $ 69,000 $ 124,000 $ 278,000 $ 840,000 $1,050,000 $ 78,000 $2,870,000 $ 80,000 Required: a. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts. b. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $1 million, and Montgomery used his 2006 applicable credit to avoid paying any gift tax. C. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $5 million, and Montgomery used his $1 million 2006 applicable credit to reduce the gift tax in 2006. Montgomery plans to bequeath his investments to charity and leave his remaining assets to his surviving relatives. (For all requirements, enter your answers in dollars and not in millions of dollars.) a. Amount of estate tax b. Amount of estate tax c. Amount of estate tax EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over Tentative Tax Plus of Amount Over 18% $ 20 0 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 Not Over 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 $ 0 1,800 3,800 8,200 13,000 18,200 23,800 38,800 70,800 155,800 248,300 345,800 0 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 *The applicable credit and exemption is zero for estates that opted out of the estate tax in 2010. Montgomery has decided to engage in wealth planning and has listed the value of his assets below. The life insurance has a cash surrender value of $148,000 and the proceeds are payable to Montgomery's estate. The Walen Trust is an irrevocable trust created by Montgomery's brother 10 years ago and contains assets currently valued at $800,000. The income from the trust is payable to Montgomery's faithful butler, Walen, for his life, and the remainder is payable to Montgomery or his estate. Walen is currently 37 vears old and the $7520 interest rate is currently 5.4 percent. Montgomery is unmarried and plans to leave all his assets to his surviving relatives. (Refer to Exhibit 25-1, Exhibit 25-2 and Exhibit 25-4.) Property Auto Personal effects Checking and savings accounts Investments Residence Life insurance proceeds Real estate investments Walen Trust Value $ 34,000 $ 89,000 $ 278,000 $ 2,570,000 $ 1,470,000 $ 1,070,000 $10,195,000 $ 800,000 Adjusted Basis $ 69,000 $ 124,000 $ 278,000 $ 840,000 $1,050,000 $ 78,000 $2,870,000 $ 80,000 Required: a. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts. b. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $1 million, and Montgomery used his 2006 applicable credit to avoid paying any gift tax. C. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $5 million, and Montgomery used his $1 million 2006 applicable credit to reduce the gift tax in 2006. Montgomery plans to bequeath his investments to charity and leave his remaining assets to his surviving relatives. (For all requirements, enter your answers in dollars and not in millions of dollars.) a. Amount of estate tax b. Amount of estate tax c. Amount of estate tax EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over Tentative Tax Plus of Amount Over 18% $ 20 0 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 Not Over 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 $ 0 1,800 3,800 8,200 13,000 18,200 23,800 38,800 70,800 155,800 248,300 345,800 0 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 *The applicable credit and exemption is zero for estates that opted out of the estate tax in 2010
