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 $144,000, and the proceeds are payable to Montgomerys estate. The Walen Trust is an irrevocable trust created by Montgomerys brother 10 years ago and contains assets currently valued at $800,000. The income from the trust is payable to Montgomerys 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.)

Required:

1. Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts.
2. 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.
3. 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.

(Please show work)

Property Auto Personal effects Checking and savings accounts Investments Residence Life insurance proceeds Real estate investments Walen Trust Value $ 32,000 87,000 274,000 2,560,000 1,460,000 1,060,000 10,185,000 800,000 Adjusted Basis $ 67,000 122,000 274,000 830,000 1,040,000 74,000 2,860,000 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* Not Over Tentative Tax Plus of Amount Over Tax Base Equal to or 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 26 80,000 100,000 13,000 18,200 23,800 80,000 100,000 28 60,000 80,000 100,000 150,000 30 150,000 250,000 38,800 32 250,000 500,000 70,800 34 750,000 155,800 37 500,000 750,000 150,000 250,000 500,000 750,000 1,000,000 1,000,000 248,300 39 1,000,000 345,800 40 *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 Estate Tax 1986 $500,000 $500,000 600,000 1987-1997 600,000 1998 625,000 625,000 1999 650,000 650,000 2000-2001 675,000 675,000 2002-2003 1,000,000 1,000,000 2004-2005 1,000,000 1,500,000 2,000,000 20062008 1,000,000 2009-2010* 3,500,000 2011 5,000,000 2012 1,000,000 5,000,000 5,120,000 5,250,000 5,340,000 2013 5,120,000 5,250,000 5,340,000 5,430,000 2014 2015 5,430,000 5,450,000 2016 5,450,000 2017 5,490,000 5,490,000 2018 11,180,000 11,180,000 2019 11,400,000 11,400,000 2020 11,580,000 11,580,000 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] 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 4.2% 4.4% 5.8% 6.0% .06083 .05483 .04959 .04501 .04101 .03749 .03441 03170 .02931 .02721 .05668 .05049 .04507 .04034 .03618 .03254 .02934 .02652 .02403 .02183 .05858 .05222 .04665 .04178 .03750 .03373 .03042 .02750 .02492 02264 .06072 .05420 .04848 .04346 .03904 .03516 .03173 .02871 .02603 .02366 .06303 .05634 .05046 .04530 .04075 .03674 .03319 .03006 .02729 .02483 .06547 .05861 .05258 .04726 .04258 .03844 .03478 .03153 .02866 .02610 .06805 .06102 .05482 .04935 .04453 .04026 .03647 .03312 .03014 .02749 Age 0 Age 1 Age 2 Age 3 Age 4 Age 5 Age 6 Age 35 Age 36 Age 37 Age 38 Age 86 Age 87 Age 88 Age 89 .19692 .18423 .17253 .16174 .15178 .14258 .13408 .12621 .11892 .11217 .20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 .12457 .11764 .21144 .19838 .18631 .17515 .16481 .15523 .14635 .13811 .13046 .12335 .21904 .20582 .19357 .18222 .17170 .16193 .15287 .14444 .13661 .12932 .79825 .79044 .78278 .77524 .76783 .76055 .75340 .74636 .73944 .73264 .80921 .80176 .79443 .78722 .78014 .77316 .76630 .75956 .75292 .74638 .81978 .81268 .80569 .79880 .78536 .77880 .77234 .76598 .79203 .80349 .75971 .77259 .82994 .82317 .81651 .80995 .79712 .79085 .78467 .77859