Estate Tax Computation: Died On January 4, 2015
Estate Tax Computation T Died On January 4 2015
Died on January 4, 2015, T owned various properties and had specific debts, gifts, and provisions in his will that influence the estate tax calculation. This paper provides a detailed computation of T’s estate tax liability considering the assets, liabilities, gifts, and applicable credits as of the date of his death, utilizing the current estate tax laws and tax rates applicable at that time.
Estate Asset Summary and Valuation
At the time of his death, T's estate comprised the following assets:
- Cash: $12,000,000
- Stocks and bonds: $700,000
- Residence: $800,000
- Interest in partnership: $350,000
- Miscellaneous personal property: $25,000
The total gross estate before deductions is:
$12,000,000 + $700,000 + $800,000 + $350,000 + $25,000 = $13,900,000.
Debts and Liabilities
T owed a mortgage of $80,000 on his residence at the time of his death. Additionally, he had a term life insurance policy, which paid $200,000 to his mother, but this amount was paid out immediately and was not part of his estate as it was a payable-on-death benefit.
Therefore, the only estate liability to consider for estate tax purposes is the mortgage debt. The adjusted gross estate after liabilities is:
$13,900,000 - $80,000 = $13,820,000.
Gifts Made During T's Lifetime and Their Impact
During his lifetime, T made a gift of a diamond ring valued at $30,000 in 1995. The following details are pertinent:
- Gift Value at the time of gift: $30,000
- Value at date of death: $50,000
- No gift taxes were paid, but the gift was qualified for annual exclusion and gift-splitting with a combined exclusion of $20,000 ($10,000 per donor under the law at that time).
Since gift-splitting was elected, the total exemption per donor was $10,000, with gift splitting allowing the total annual exclusion to be effectively doubled. The fair market value of the gift at death was $50,000. The gift tax payable on this transfer, assuming applicable tax rates, would utilize the unified gift and estate tax credit, reducing the remaining estate value accordingly.
Estate Provisions and Distributions According to Will
The provisions of T's will direct:
- To his wife: all stocks and bonds valued at $700,000
- To his alma mater: $50,000 to establish a chair for a tax professor
- The residue of the estate to his daughter.
These provisions affect how the estate’s residue is calculated after specific bequests, but do not significantly alter the gross estate value itself for estate tax purposes.
Basic Principles and Applicable Law
The estate tax calculation is based on federal estate tax laws effective in 2015. The top estate tax rate in 2015 was 40%, with a unified credit of $5.43 million. The applicable exclusion amount at that time was $5.43 million, which means estates valued below this threshold would owe no estate tax. The calculation involves determining the gross estate, subtracting allowable deductions and debts, adding gross gift tax amounts, and applying credits.
Estate Tax Calculation
Step 1: Determine Gross Estate
Gross estate includes all property at death, valued as follows:
- Cash: $12,000,000
- Stocks and bonds: $700,000
- Residence: $800,000
- Interest in partnership: $350,000
- Miscellaneous personal property: $25,000
Total gross estate: $13,900,000
Step 2: Deduct Debts and Liabilities
Mortgage debt: $80,000
Net estate before deductions: $13,900,000 - $80,000 = $13,820,000
Step 3: Add Gifts Made During Life
The gift of the diamond ring in 1995, valued at $50,000 at his death, is considered in the estate tax base if the estate exceeds the exemption. For gift tax purposes, the value at the time of gift was $30,000 with applicable exclusions and gift splitting. Since the gift was properly split and no gift tax was paid, the gift increases the total taxable estate (unified credit reduces the estate tax for this amount). The gift's value at death ($50,000) is included in the gross estate for estate tax purposes.
Step 4: Calculate the Estate Tax
Since the gross estate exceeds the exemption amount of $5.43 million, estate tax will be owed at the marginal rate of 40% on the amount exceeding the exemption.
Taxable estate = $13,820,000
Less: Applicable exemption (2015) = $5,430,000
Taxable amount = $13,820,000 - $5,430,000 = $8,390,000
Estate tax before credits = 40% of $8,390,000 = $3,356,000
Step 5: Apply Estate Tax Credits
The federal estate tax credit in 2015 was approximately $2,084,800, which reduces the estate tax liability.
Final estate tax liability = $3,356,000 - $2,084,800 = $1,271,200
This is the estate tax owed before considering any additional credits or state taxes.
Conclusion
Based on the detailed calculations, the estate tax liability for T as of his death on January 4, 2015, amounts to approximately $1,271,200. This calculation considers the gross estate, liabilities, lifetime gifts, applicable exemption, and federal estate tax credit, aligning with the laws and rates applicable during that period. Proper estate planning and timely valuations are crucial in minimizing estate tax obligations, especially for estates of substantial value like T’s.
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