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Estates, Trusts and Gifts Tax Problems

1. Horton dies in 2009, leaving a taxable estate of $3.7 million. In 2002, he made a taxable gift of $100,000 upon which he paid no tax due to the availability of the unified tax credit. Calculate the estate tax due.

2. In June 2009, Roy died in an auto accident while vacationing in Montana. Discuss
the tax ramifications of the following transactions involving the administration of Roy's

a. The executor of the estate (Roy's daughter) travels to Montana to pick up and transport
the remains for burial in the family plot in Tupelo, Mississippi. The expenses
involved are paid by the estate.

b. In early 2009, Roy had promised to give his niece $15,000 if she passed the bar exam.
After Roy's death, the niece passes the exam, and the executor of his estate pays her

c. In March 2009, Roy had pledged $55,000 to the building fund of his church. The
estate satisfies the pledge.

d. Due to the accident, Roy's auto (basis of $85,000; fair market value of $38,000) was
completely destroyed. Insurance recovery of $37,000 is received by Roy's estate.

e. The local sheriff issued a ticket to Roy for a moving traffic violation and leaving the
scene of an accident. Roy's estate paid the ticket, fine, and court costs of $3,500.

f. Roy's estate paid Federal ($140,000) and state ($10,100) income taxes when it filed
his final (year of death) income tax return.

g. The day after Roy's death, his vacation cabin is burglarized and personal effects
(e.g., laptop computer, Rolex watch) are stolen. The property taken cost Roy
$25,000 but had a value of $13,000 and was not insured.

3. At the time of his death in the current year, Jeff owned the following property

* Insurance policy on Jeff s life (maturity value of $1 million) with Taylor (Jeff?s wife) as
the designated beneficiary.
* Insurance on Taylor's life (maturity value of $1 million and replacement value of
$150,000) with Jeff as the designated beneficiary.
* Roth and traditional IRAs (value of $50,000 and $650,000 for a total of $700,000) with
Janet (Jeff?s prior deceased wife) as the designated beneficiary.
* Personal residence (fair market value of $1.5 million) purchased by Jeff and title listed
as "Jeff and Taylor, tenancy by the entirety." The residence is subject to a mortgage of
* Office building (fair market value of $2 million) owned by Jeff and his three sisters as
equal tenants in common.
* Fifteen cemetery lots (valued at $7,000 each) purchased for family use. Jeff has
directed that he is to be cremated and his ashes scattered in Lake Michigan.

Under Jeff 's will, all of his property passes to Taylor. How much marital deduction is Jeff's estate allowed?

Solution Preview


Question 1
Taxable estate 3.7 million
Less: Maximum estate tax credit 3.5 million or maximum unified tax credit 3.7 million x 45%
Estate subject to estate tax = 0.2 million
Estate tax = 0.2 million x 46% = 92,000

Question 2
Situation A
This is an allowable deduction as part of funeral expenses

Situation B
This will be taxable to the estate and not as part of allowable deductions. The gift was not ...

Solution Summary

Estates, trusts and gifts tax problems are examined.