Chapter 16, Problem 3PA

Summary Introduction

(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.

Conclusion

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.

Summary Introduction

(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.

Conclusion

Thus, the taxable value of M’s estate after all eligible deductions is $7,530,000.

Summary Introduction

(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.

Conclusion

Thus, the taxable value of M’s gross gift adjusted estate after all eligible deductions is $2,190,000.

Summary Introduction

(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.

Conclusion

Thus, the taxable value of M’s estate after his death and after all eligible deductions is $2,190,000.

Summary Introduction

(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.

Conclusion

Thus, the estate tax after all eligible deductions is $876,000.