a-1. Amount of gift tax a-2. Amount of estate tax savings
Jones is seriously ill and has $5.20 million of property that he wants to leave to his four children. Jones is considering making a current gift of the property (rather than leaving the property to pass through a will). Assume all of his exemption equivalent was used and any taxable transfers will be subject to the highest transfer tax rate. (Refer to Exhibit 25-1 and Exhibit 25-2.)
a-1. Determine how much gift tax Jones will owe if the transfers are made now.
a-2. If Jones makes a current gift, how much estate tax will be saved if Jones dies after three years, during which time the property appreciates to $5.6 million?
Note: For all requirements, enter your answers in dollars and not in millions of dollars.
EXHIBIT 25-1 Unified Transfer Tax Rates*
| 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 |
EXHIBIT 25-2 The Exemption Equivalent / Applicable Exclusion Amount
| 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 |
| 2022 | 12,060,000 | 12,060,000 |
| 2023 | 12,920,000 | 12,920,000 |
| 2024 | 13,610,000 | 13,610,000 |
*The estate tax was optional for decedents dying in 2010. In lieu of the estate tax, executors could opt to have the adjusted tax basis of the assets in the gross estate carry over to the heirs of the decedent. The applicable credit and exemption are zero for taxpayers who opt out of the estate tax in 2010.
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