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 $120,000 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 14-1, Exhibit 14-2 and Exhibit 14-4.)

Adjusted Property Value Basis Auto $ 20,000 $ 55,000 Personal effects $ 75,000 $ 110,000 Checking and savings accounts $ 250,000 $ 250,000 Investments $ 2,500,000 $ 770,000 Residence $ 1,400,000 $ 980,000 Life insurance proceeds $ 1,000,000 $ 50,000 Real estate investments $ 10,125,000 $ 2,800,000 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.

(For all requirements, enter your answers in dollars and not in millions of dollars.)

Unified Transfer Tax Rates Not Over Plus of Amount Over 18% 0 EXHIBIT 25-1 Tax Base Equal to or Over 0 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 Tentative Tax 0 1.800 3,800 8.200 13,000 18,200 23,800 38,800 70,800 155,800 248,300 345.800 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. EXHIBIT 25-2 The Exemption Equivalent Year of Transfer Gift Tax Estate Tax 1986 500,000 $ 500.000 1987-1997 600,000 600,000 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 2006-2008 1.000.000 2.000.000 2009-2010 1,000,000 3,500,000 2011 5.000.000 5.000.000 2012 5,120,000 5.120,000 2013 5,250,000 5.250,000 2014 5.340,000 5.340.000 2015 5,430,000 5,430,000 2016 5,450,000 5,450,000 2017 5,490,000 5,490,000 2018 11,180,000 11,150,000 * The applicable credit and exemption is zero for taxpayers who opt out of the state tax in 2010. EXHIBIT 25-4 Discount Factors for Estimating the value of Remainders Age 0 Regulation Section 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% .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 .03844 .03478 .03153 .02866 .02610 .06805 .06102 .05482 .04935 04453 .04026 03647 .03312 .03014 .02749 4 5 6 35 36 37 38 .19692 .18423 .17253 .16174 .20407 .19119 17931 .16833 .21144 .19838 .18631 .17515 .21904 20582 .19357 18222 .15178.14258.13408 .12621 11892 .11217 .15818 .14879 14009 13204 12457 .11764 .16481 15523 14635 .13811 .13046 .12335 .17170 .16193 .15287 .14444 13661 12932 86 87 .79825 .79044 .78278 .77524 .76783 76055 75340 74636 73944 .73264 .80921 .80176 .7944378722 .78014 .77316 76630 .75956 75292 .74638 .81978 .81268 .80569.79880.79203 78536 77880 .77234 76598 .75971 1.82994 1.82317 81651 80995 .80349.79712 1.79085 1.784671.77859.77259 88 89 Unified Transfer Tax Rates Not Over Plus of Amount Over 18% 0 EXHIBIT 25-1 Tax Base Equal to or Over 0 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 10,000 20,000 40,000 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 Tentative Tax 0 1.800 3,800 8.200 13,000 18,200 23,800 38,800 70,800 155,800 248,300 345.800 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. EXHIBIT 25-2 The Exemption Equivalent Year of Transfer Gift Tax Estate Tax 1986 500,000 $ 500.000 1987-1997 600,000 600,000 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 2006-2008 1.000.000 2.000.000 2009-2010 1,000,000 3,500,000 2011 5.000.000 5.000.000 2012 5,120,000 5.120,000 2013 5,250,000 5.250,000 2014 5.340,000 5.340.000 2015 5,430,000 5,430,000 2016 5,450,000 5,450,000 2017 5,490,000 5,490,000 2018 11,180,000 11,150,000 * The applicable credit and exemption is zero for taxpayers who opt out of the state tax in 2010. EXHIBIT 25-4 Discount Factors for Estimating the value of Remainders Age 0 Regulation Section 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% .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 .03844 .03478 .03153 .02866 .02610 .06805 .06102 .05482 .04935 04453 .04026 03647 .03312 .03014 .02749 4 5 6 35 36 37 38 .19692 .18423 .17253 .16174 .20407 .19119 17931 .16833 .21144 .19838 .18631 .17515 .21904 20582 .19357 18222 .15178.14258.13408 .12621 11892 .11217 .15818 .14879 14009 13204 12457 .11764 .16481 15523 14635 .13811 .13046 .12335 .17170 .16193 .15287 .14444 13661 12932 86 87 .79825 .79044 .78278 .77524 .76783 76055 75340 74636 73944 .73264 .80921 .80176 .7944378722 .78014 .77316 76630 .75956 75292 .74638 .81978 .81268 .80569.79880.79203 78536 77880 .77234 76598 .75971 1.82994 1.82317 81651 80995 .80349.79712 1.79085 1.784671.77859.77259 88 89