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 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 Value $ $ in $ Adjusted Basis 20,000 $ 75,000 $ 250,000 $ $ 2,500,000 $ $ 1,400,000 $ 55,000 110,000 250,000 770,000 980,000
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 $120,000, and the proceeds are payable to Montgomery's estate. The 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 Value $ $ in $ Adjusted Basis 20,000 $ 75,000 $ 250,000 $ $ 2,500,000 $ $ 1,400,000 $ 55,000 110,000 250,000 770,000 980,000
Chapter27: The Federal Gift And Estate Taxes
Section: Chapter Questions
Problem 37P
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Question
Dd.107.
Transcribed Image Text: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 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.)
Auto
Property
Personal effects
Checking and savings
accounts
Investments
Residence
Life insurance proceeds
Real estate investments
Trust
Value
$
$
$
Adjusted
Basis
20,000 $
75,000 $
250,000 $
55,000
110,000
250,000
$ 2,500,000 $
$ 1,400,000 $
$ 1,000,000 $
50,000
$ 5,125,000 $ 2,800,000
$ 800,000 $ 80,000
770,000
980,000
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 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 unified credit to avoid paying any gift tax. Montgomery
plans to bequeath his investments to charity and leave his remaining assets to his surviving relatives.
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