Concept explainers
(a)
To determine:
Gross value of M’s estate.
Introduction:
Estate is the sum total of all the money, assets and properties held by a person expressed in monetary terms.
Explanation of Solution
Given,
Value of assess at the time of M’s death is $8,600,000.
Cost of her funeral is $18,000.
Estate administration cost is $52,000.
Amount for charities as per will is $1,000,000.
Gross value of estate is the total value of all the assets and properties which are left behind after the death of a person.
Hence, the gross value of M’s estate would be $8,600,000.
Thus, the total gross value of M’s estate will be the total value of all the assets left over after her death which is $8,600,000.
(b)
To determine:
Taxable value of M’s estate.
Introduction:
Taxable value
is the value of an estate of a person after eligible deductions upon which the tax is charged.
Explanation of Solution
Given,
Value of assess at the time of M’s death is $8,600,000.
Cost of her funeral is $18,000.
Estate administration cost is $52,000.
Amount for charities as per will is $1,000,000.
Taxable value of estate is calculated after making several adjustments to the gross value of estate and it will be,
Particulars | Amount ($) |
13. Calculate gross value of estate | |
j. Value of gross estate | 8,600,000 |
14. Calculate taxable estate | |
Less: | |
Funeral expenses | 18,000 |
Estate administration expenses | 52,000 |
Taxes | Nil |
Charitable deductions | 1,000,000 |
k. Taxable estate | 7,530,000 |
15. Calculate gift adjusted taxable estate | |
Plus: Amount of gift in excess of annual deduction | Nil |
Less: Estate tax free transfer threshold | Nil |
l. Gift adjusted taxable estate | 7,530,000 |
Table (1)
Hence, the taxable estate value is $7,530,000.
Thus, the taxable value of M’s estate after all eligible deductions is $7,530,000.
(c)
To determine:
Gift adjusted taxable value of M’s estate.
Introduction:
Gift
is a present willingly given to someone without receiving any monetary return or consideration against it.
Explanation of Solution
Given,
Value of assess at the time of M’s death is $8,600,000.
Cost of her funeral is $18,000.
Estate administration cost is $52,000.
Amount for charities as per will is $1,000,000.
Taxable value of gift adjusted taxable estate is calculated after making several adjustments to the gross value of estate and it will be,
Particulars | Amount ($) |
1. Calculate gross value of estate | |
a. Value of gross estate | 8,600,000 |
2. Calculate taxable estate | |
Less: | |
Funeral expenses | 18,000 |
Estate administration expenses | 52,000 |
Taxes | Nil |
Charitable deductions | 1,000,000 |
b. Taxable estate | 7,530,000 |
3. Calculate gift adjusted taxable estate | |
Plus: Amount of gift in excess of annual deduction | Nil |
Less: Estate tax free transfer threshold | 5,340,000 |
c. Gift adjusted taxable estate | 2,190,000 |
Table (2)
Hence, the taxable estate value is $2,190,000.
Thus, the taxable value of M’s gross gift adjusted estate after all eligible deductions is $2,190,000.
(d)
To determine:
Taxable value of M’s estate after his death
Explanation of Solution
Given,
Value of assess at the time of M’s death is $8,600,000.
Cost of her funeral is $18,000.
Estate administration cost is $52,000.
Amount for charities as per will is $1,000,000.
Taxable value of estate after the death of M is calculated after making several adjustments to the gross value of estate and it will be,
Particulars | Amount ($) |
1. Calculate gross value of estate | |
a. Value of gross estate | 8,600,000 |
2. Calculate taxable estate | |
Less: | |
Funeral expenses | 18,000 |
Estate administration expenses | 52,000 |
Taxes | Nil |
Charitable deductions | 1,000,000 |
b. Taxable estate | 7,530,000 |
3. Calculate gift adjusted taxable estate | |
Plus: Amount of gift in excess of annual deduction | Nil |
Less: Estate tax free transfer threshold | 5,340,000 |
c. Gift adjusted taxable estate | Nil |
4. Calculate estate tax | |
Estate tax is 40 percent of gift adjusted taxable estate | 2,190,000 |
Table (3)
Hence, the taxable estate value is $2,190,000.
Thus, the taxable value of M’s estate after his death and after all eligible deductions is $2,190,000.
(e)
To determine:
Estate tax liability of M.
Explanation of Solution
Given,
Value of assess at the time of M’s death is $8,600,000.
Cost of her funeral is $18,000.
Estate administration cost is $52,000.
Amount for charities as per will is $1,000,000.
Taxable value of estate is calculated after making several adjustments to the gross value of estate and it will be,
Particulars | Amount ($) |
1. Calculate gross value of estate | |
a. Value of gross estate | 8,600,000 |
2. Calculate taxable estate | |
Less: | |
Funeral expenses | 18,000 |
Estate administration expenses | 52,000 |
Taxes | Nil |
Charitable deductions | 1,000,000 |
b. Taxable estate | 7,530,000 |
3. Calculate gift adjusted taxable estate | |
Plus: Amount of gift in excess of annual deduction | Nil |
Less: Estate tax free transfer threshold | 5,340,000 |
c. Gift adjusted taxable estate | 2,190,000 |
4. Calculate estate tax | |
Estate tax is 40 percent of gift adjusted taxable estate | 876,000 |
Table (4)
Hence, the estate tax is $876,000.
Thus, the estate tax after all eligible deductions is $876,000.
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