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 $156,000, 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 years 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) Adjusted Property Value Basis Auto 38,000 $ 73,000 Personal effects 93,000 128,000 Checking and savings accounts 286,000 286,000 Investments 2,590,000 860,000 Residence 1,490,000 1,070,000 Life insurance proceeds 1,090,000 86,000 Real estate investments 10,215,000 2,890,000 Walen Trust 800,000 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. EXHIBIT 25-1 Unified Transfer Tax Rates* 80,000 Tax Base Equal to or Over Not Over Tentative Tax Plus of Amount Over $0 $10,000 $ 0 18% $ 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 26 60,000 100,000 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 34 250,000 500,000 750,000 155,800 37 500,000 750,000 1,000,000 248,300 39 750,000 1,000,000 345,800 40 1,000,000 *The applicable credit and exemption are zero for estates that opted out of the estate tax in 2010. EXHIBIT 25-2 The Exemption Equivalent Year of Transfer Gift Tax 1986 $500,000 1987-1997 600,000 1998 625,000 1999 650,000 2000-2001 675,000 2002-2003 1,000,000 2004-2005 1,000,000 2006-2008 1,000,000 20092010* 1,000,000 2011 5,000,000 2012 5,120,000 2013 5,250,000 2014 5,340,000 2015 5,430,000 2016 5,450,000 2017 5,490,000 2018 11,180,000 2019 11,400,000 2020 11,580,000 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 11,580,000 *The applicable credit and exemption are zero for taxpayers who opt out of the estate tax in 2010. 5.8% .02931 Age 0 6.0% .02721 .02183 .02403 .02492 02603 Age 3 EXHIBIT 25-4 Discount Factors for Estimating the value of Remainders Regulation $ 20.2031-7(d)(7) Table S.-Based on Life Table 2000CM Single Life Remainder Factors Applicable After May 1, 2009 [Interest rate] 4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 06083 .05483 04959 04501 04101 03749 03441 .03170 Age 1 .05668 05049 .04507 04034 .03618 .03254 .02934 .02652 Age 2 05858 05222 04665 04178 .03750 .03373 .03042 .02750 06072 05420 .04848 .04346 ,03904 03516 .03173 .02871 Age 4 06303 05634 05046 .04530 .04075 .03674 .03319 .03006 Age 5 06547 05861 05258 .04726 04258 03844 03478 03153 .06805 .06102 .05482 04935 04453 04026 .03647 .03312 .19692 .18423 .17253 .16174 .15178 .14258 .13408 .12621 20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 Age 37 .21144 .19838 .18631 .17515 .16481 .15523 .14635 .13811 Age 38 21904 .20582 .19357 .18222 .17170 .16193 .15287 .14444 Age 86 .79825 .79044 .78278 .77524 .76783 .76055 .75340 .74636 Age 87 .80921 .80176 .79443 .78722 .78014 .77316 .76630 .75956 Age 88 .81978 .81268 .80569 .79880 .79203 .78536 .77880 .77234 Age 89 .82994 .82317 .81651 .80995 .80349 .79712 .79085 .78467 .02729 02866 02264 .02366 .02483 .02610 .02749 .11217 .11764 Age 6 Age 35 Age 36 .03014 .11892 .12457 .13046 .12335 .13661 73944 .75292 .76598 .12932 .73264 74638 .75971 .77259 .77859 Source: Rep & 20 2031-7101/71 Tahles