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 $152,000, 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.) Property Auto Personal effects Checking and savings accounts Investments Residence Life insurance proceeds Real estate investments Walen Trust Value $ 36,000 91,000 282,000 2,580,000 1,480,000 1,080,000 10, 205,000 800,000 Adjusted Basis $ 71,000 126,000 282,000 850,000 1,060,000 82,000 2,880,000 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 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 3,800 22 20,000 40,000 60,000 40,000 8,200 24 40,000 60,000 80,000 13,000 26 60,000 80,000 100,000 18,200 28 80,000 100,000 150,000 30 23,800 38,800 100,000 150,000 150,000 250,000 32 250,000 500,000 70,800 34 250,000 500,000 750,000 37 500,000 1,000,000 155,800 248,300 345,800 750,000 1,000,000 39 750,000 1,000,000 40 *The applicable credit and exemption are zero for estates that opted out of the estate tax in 2010. 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% 5.8% 6.0% Age 0 .06083 05483 104959 .04501 .04101 .03749 .03441 .03170 .02931 .02721 Age 1 .05668 .05049 .04507 .04034 .03618 .03254 .02934 .02652 .02403 .02183 .05858 .05222 .04665 .04178 .03750 .03373 .03042 .02750 .02492 .02264 Age 2 Age 3 .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 .19692 .18423 .17253 .16174 15178 .14258 .13408 .12621 .11892 .11217 .20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 .12457 .11764 Age 4 Age 5 Age 6 Age 35 Age 36 Age 37 Age 38 Age 86 Age 87 Age 88 Age 89 .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 .74638 .75292 .76598 .81978 .81268 .80569 .79880 .79203 .78536 .77880 .77234 .75971 .82994 .82317 .81651 .80995 .80349 .79712 .79085 .78467 .77859 .77259 Source: Reg. $ 20.2031-7(d) (7) Table S. EXHIBIT 25-2 The Exemption Equivalent Estate Tax Year of Transfer 1986 Gift Tax $500,000 1987-1997 600,000 $500,000 600,000 625,000 1998 625,000 650,000 1999 650,000 675,000 2000-2001 2002-2003 2004-2005 1,000,000 1,500,000 675,000 1,000,000 1,000,000 1,000,000 1,000,000 5,000,000 2006-2008 2,000,000 3,500,000 2009-2010* 2011 5,000,000 5,120,000 2012 2013 2014 5,120,000 5,250,000 5,250,000 5,340,000 5,430,000 2015 5,340,000 5,430,000 5,450,000 5,490,000 2016 5,450,000 2017 5,490,000 2018 11,180,000 2019 11,180,000 11,400,000 11,580,000 11,400,000 11,580,000 2020 *The applicable credit and exemption are zero for taxpayers who opt out of the estate tax in 2010