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 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 $ 20,000 75,000 250,000 2,500,000 1,400,000 1,000,000 10,125,000 800,000 Adjusted Basis $ 55,000 110,000 250,000 770,000 980,000 50,000 2,800,000 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 (For all requirements, enter your answers in dollars and not in millions of dollars.) Amount of estate tax Amount of estate tax Amount of estate tax EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over $ 0 10,000 20,000 40,000 60,000 80,000 Not Over $10,000 20,000 40,000 Plus 18% 20 22 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 of Amount Over $ 0 10,000 20,000 40,000 60,000 80,000 100,000 26 28 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 100,000 32 150,000 250,000 150,000 250,000 500,000 37 500,000 750,000 39 750,000 1,000,000 1,000,000 40 *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 1987-1997 1998 $500,000 600,000 625,000 650,000 675,000 1,000,000 1999 2000-2001 2002-2003 20042005 1,000,000 20062008 1,000,000 $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 2009-2010* 2011 2012 2013 2014 1,000,000 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 2015 2016 2017 5,490,000 2018 11,180,000 11,400,000 2019 *The applicable credit and exemption is zero for taxpayers who opt out of the estate tax in 2010. EXHIBIT 25-4 Discount Factors for Estimating the Value of Remainders 6.0% .02721 .02183 02264 .02366 .02483 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% Age 0 .06083 .05483 .04959 .04501 .04101 .03749 03441 .03170 .02931 Age 1 .05668 .05049 .04507 .04034 .03618 .03254 .02934 .02652 .02403 Age 2 .05858 .05222 .04665 0 4178 0 3750 .03373 03042 0 2750 .02492 Age 3 .06072 .05420 .04848 .04346 .03904 .03516 .03173 .02871 .02603 Age 4 .06303 .05634 .05046 .04530 .04075 .03674 .03319 .03006 .02729 Age 5 .06547 .05861 .05258 .04726 .04258 .03844 03478 .03153 .02866 Age 6 .06805 .06102 .05482 .04935 04453 .04026 .03647 .03312 .03014 Age 35 .19692 .18423 .17253 .16174 .15178 .14258 .13408 .12621 .11892 Age 36 20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 .12457 Age 37 .21144 .19838 .18631 .17515 .16481 .15523 .14635 .13811 .13046 Age 38 .21904 20582 .19357 .18222 .17170 .16193 .15287 .14444 .13661 Age 86 .79825 .79044 .78278 .77524 .76783 76055 .75340 74636 | .73944 Age 87 .80921 80176 79443 78722 78014 77316 76630 .75956 75292 Age 88 .81978 .81268 .80569 .79880 .79203 .78536 .77880 .77234 76598 Age 89 .82317 8 1651 .80995 .80349 .79712 .790857846777859 " ./7839 Source: Reg. $ 20.2031-7(d)(7) Table S.-Based on Life Table 2000CM Single Life Remainder Factors Applicable After May 1, 2009. .02610 .02749 .11217 .11764 .12335 .12932 1 .73264 74638 .75971 77259 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 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 $ 20,000 75,000 250,000 2,500,000 1,400,000 1,000,000 10,125,000 800,000 Adjusted Basis $ 55,000 110,000 250,000 770,000 980,000 50,000 2,800,000 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 (For all requirements, enter your answers in dollars and not in millions of dollars.) Amount of estate tax Amount of estate tax Amount of estate tax EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over $ 0 10,000 20,000 40,000 60,000 80,000 Not Over $10,000 20,000 40,000 Plus 18% 20 22 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 of Amount Over $ 0 10,000 20,000 40,000 60,000 80,000 100,000 26 28 60,000 80,000 100,000 150,000 250,000 500,000 750,000 1,000,000 100,000 32 150,000 250,000 150,000 250,000 500,000 37 500,000 750,000 39 750,000 1,000,000 1,000,000 40 *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 1987-1997 1998 $500,000 600,000 625,000 650,000 675,000 1,000,000 1999 2000-2001 2002-2003 20042005 1,000,000 20062008 1,000,000 $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 2009-2010* 2011 2012 2013 2014 1,000,000 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 2015 2016 2017 5,490,000 2018 11,180,000 11,400,000 2019 *The applicable credit and exemption is zero for taxpayers who opt out of the estate tax in 2010. EXHIBIT 25-4 Discount Factors for Estimating the Value of Remainders 6.0% .02721 .02183 02264 .02366 .02483 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% Age 0 .06083 .05483 .04959 .04501 .04101 .03749 03441 .03170 .02931 Age 1 .05668 .05049 .04507 .04034 .03618 .03254 .02934 .02652 .02403 Age 2 .05858 .05222 .04665 0 4178 0 3750 .03373 03042 0 2750 .02492 Age 3 .06072 .05420 .04848 .04346 .03904 .03516 .03173 .02871 .02603 Age 4 .06303 .05634 .05046 .04530 .04075 .03674 .03319 .03006 .02729 Age 5 .06547 .05861 .05258 .04726 .04258 .03844 03478 .03153 .02866 Age 6 .06805 .06102 .05482 .04935 04453 .04026 .03647 .03312 .03014 Age 35 .19692 .18423 .17253 .16174 .15178 .14258 .13408 .12621 .11892 Age 36 20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 .12457 Age 37 .21144 .19838 .18631 .17515 .16481 .15523 .14635 .13811 .13046 Age 38 .21904 20582 .19357 .18222 .17170 .16193 .15287 .14444 .13661 Age 86 .79825 .79044 .78278 .77524 .76783 76055 .75340 74636 | .73944 Age 87 .80921 80176 79443 78722 78014 77316 76630 .75956 75292 Age 88 .81978 .81268 .80569 .79880 .79203 .78536 .77880 .77234 76598 Age 89 .82317 8 1651 .80995 .80349 .79712 .790857846777859 " ./7839 Source: Reg. $ 20.2031-7(d)(7) Table S.-Based on Life Table 2000CM Single Life Remainder Factors Applicable After May 1, 2009. .02610 .02749 .11217 .11764 .12335 .12932 1 .73264 74638 .75971 77259