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 $154,000, 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 Value Adjusted Basis Auto $ 37,000 $ 72,000 Personal effects 92,000 127,000 Checking and savings accounts 284,000 284,000 Investments 2,585,000 855,000 Residence 1,485,000 1,065,000 Life insurance proceeds 1,085,000 84,000 Real estate investments 10,210,000 2,885,000 Walen Trust 800,000 80,000 Required: Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts. 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. 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.) Regulation § 20.2031-7(d)(7) Table S.—Based on Life Table 2000CM Single Life Remainder Factors Applicable on or 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 .04959 .04501 .04101 .03749 .03441 .03170 .02931 .02721 Age 1 .05668 .05049 .04507 .04034 .03618 .03254 .02934 .02652 .02403 .02183 Age 2 .05858 .05222 .04665 .04178 .03750 .03373 .03042 .02750 .02492 .02264 Age 3 .06072 .05420 .04848 .04346 .03904 .03516 .03173 .02871 .02603 .02366 Age 4 .06303 .05634 .05046 .04530 .04075 .03674 .03319 .03006 .02729 .02483 Age 5 .06547 .05861 .05258 .04726 .04258 .03844 .03478 .03153 .02866 .02610 Age 6 .06805 .06102 .05482 .04935 .04453 .04026 .03647 .03312 .03014 .02749 Age 35 .19692 .18423 .17253 .16174 .15178 .14258 .13408 .12621 .11892 .11217 Age 36 .20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 .12457 .11764 Age 37 .21144 .19838 .18631 .17515 .16481 .15523 .14635 .13811 .13046 .12335 Age 38 .21904 .20582 .19357 .18222 .17170 .16193 .15287 .14444 .13661 .12932 Age 86 .79825 .79044 .78278 .77524 .76783 .76055 .75340 .74636 .73944 .73264 Age 87 .80921 .80176 .79443 .78722 .78014 .77316 .76630 .75956 .75292 .74638 Age 88 .81978 .81268 .80569 .79880 .79203 .78536 .77880 .77234 .76598 .75971 Age 89 .82994 .82317 .81651 .80995 .80349 .79712 .79085 .78467 .77859 .77259 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 11,180,000 2019 11,400,000 11,400,000 2020 11,580,000 11,580,000 2021 11,700,000 11,700,000 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 80,000 100,000 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
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 $154,000, 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 Value Adjusted Basis Auto $ 37,000 $ 72,000 Personal effects 92,000 127,000 Checking and savings accounts 284,000 284,000 Investments 2,585,000 855,000 Residence 1,485,000 1,065,000 Life insurance proceeds 1,085,000 84,000 Real estate investments 10,210,000 2,885,000 Walen Trust 800,000 80,000 Required: Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts. 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. 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.) Regulation § 20.2031-7(d)(7) Table S.—Based on Life Table 2000CM Single Life Remainder Factors Applicable on or 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 .04959 .04501 .04101 .03749 .03441 .03170 .02931 .02721 Age 1 .05668 .05049 .04507 .04034 .03618 .03254 .02934 .02652 .02403 .02183 Age 2 .05858 .05222 .04665 .04178 .03750 .03373 .03042 .02750 .02492 .02264 Age 3 .06072 .05420 .04848 .04346 .03904 .03516 .03173 .02871 .02603 .02366 Age 4 .06303 .05634 .05046 .04530 .04075 .03674 .03319 .03006 .02729 .02483 Age 5 .06547 .05861 .05258 .04726 .04258 .03844 .03478 .03153 .02866 .02610 Age 6 .06805 .06102 .05482 .04935 .04453 .04026 .03647 .03312 .03014 .02749 Age 35 .19692 .18423 .17253 .16174 .15178 .14258 .13408 .12621 .11892 .11217 Age 36 .20407 .19119 .17931 .16833 .15818 .14879 .14009 .13204 .12457 .11764 Age 37 .21144 .19838 .18631 .17515 .16481 .15523 .14635 .13811 .13046 .12335 Age 38 .21904 .20582 .19357 .18222 .17170 .16193 .15287 .14444 .13661 .12932 Age 86 .79825 .79044 .78278 .77524 .76783 .76055 .75340 .74636 .73944 .73264 Age 87 .80921 .80176 .79443 .78722 .78014 .77316 .76630 .75956 .75292 .74638 Age 88 .81978 .81268 .80569 .79880 .79203 .78536 .77880 .77234 .76598 .75971 Age 89 .82994 .82317 .81651 .80995 .80349 .79712 .79085 .78467 .77859 .77259 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 11,180,000 2019 11,400,000 11,400,000 2020 11,580,000 11,580,000 2021 11,700,000 11,700,000 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 80,000 100,000 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
Chapter8: Trusts
Section: Chapter Questions
Problem 2CTD
Related questions
Question
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 $154,000, 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 | Value | Adjusted Basis |
|---|---|---|
| Auto | $ 37,000 | $ 72,000 |
| Personal effects | 92,000 | 127,000 |
| Checking and savings accounts | 284,000 | 284,000 |
| Investments | 2,585,000 | 855,000 |
| Residence | 1,485,000 | 1,065,000 |
| Life insurance proceeds | 1,085,000 | 84,000 |
| Real estate investments | 10,210,000 | 2,885,000 |
| Walen Trust | 800,000 | 80,000 |
Required:
- Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts.
- 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.
- 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.)
| Regulation § 20.2031-7(d)(7) Table S.—Based on Life Table 2000CM Single Life Remainder Factors Applicable on or 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 | .04959 | .04501 | .04101 | .03749 | .03441 | .03170 | .02931 | .02721 |
| Age 1 | .05668 | .05049 | .04507 | .04034 | .03618 | .03254 | .02934 | .02652 | .02403 | .02183 |
| Age 2 | .05858 | .05222 | .04665 | .04178 | .03750 | .03373 | .03042 | .02750 | .02492 | .02264 |
| Age 3 | .06072 | .05420 | .04848 | .04346 | .03904 | .03516 | .03173 | .02871 | .02603 | .02366 |
| Age 4 | .06303 | .05634 | .05046 | .04530 | .04075 | .03674 | .03319 | .03006 | .02729 | .02483 |
| Age 5 | .06547 | .05861 | .05258 | .04726 | .04258 | .03844 | .03478 | .03153 | .02866 | .02610 |
| Age 6 | .06805 | .06102 | .05482 | .04935 | .04453 | .04026 | .03647 | .03312 | .03014 | .02749 |
| Age 35 | .19692 | .18423 | .17253 | .16174 | .15178 | .14258 | .13408 | .12621 | .11892 | .11217 |
| Age 36 | .20407 | .19119 | .17931 | .16833 | .15818 | .14879 | .14009 | .13204 | .12457 | .11764 |
| Age 37 | .21144 | .19838 | .18631 | .17515 | .16481 | .15523 | .14635 | .13811 | .13046 | .12335 |
| Age 38 | .21904 | .20582 | .19357 | .18222 | .17170 | .16193 | .15287 | .14444 | .13661 | .12932 |
| Age 86 | .79825 | .79044 | .78278 | .77524 | .76783 | .76055 | .75340 | .74636 | .73944 | .73264 |
| Age 87 | .80921 | .80176 | .79443 | .78722 | .78014 | .77316 | .76630 | .75956 | .75292 | .74638 |
| Age 88 | .81978 | .81268 | .80569 | .79880 | .79203 | .78536 | .77880 | .77234 | .76598 | .75971 |
| Age 89 | .82994 | .82317 | .81651 | .80995 | .80349 | .79712 | .79085 | .78467 | .77859 | .77259 |
| 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 | 11,180,000 |
| 2019 | 11,400,000 | 11,400,000 |
| 2020 | 11,580,000 | 11,580,000 |
| 2021 | 11,700,000 | 11,700,000 |
| 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 |
| 80,000 | 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 |
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