Question

This year Noah transferred $7 million to an irrevocable trust established for the benefit of his niece. The trustee
is directed to accumulate income for the next five years before distributing the before distributing the trust corpus to
Noah’s niece. In past years Noah has made taxable gifts of $6 million and used an applicable credit on an exemption
equivalent of $5 million. What amount of gift tax, if any, must Noah remit?

I would appreciate some help with this problem. I would love if someone could explain it to me and show me the work to get to the answer.

Answer 1

Annual gift tax exemption =$15000.

If you give gift more than $15000, the excess amount will be counted in the lifetime exclusion

In this case $7 million minus $15000 will be included in the lifetime exclusion

Lifetime exclusion in 2020 is $11.58 million

Hence lifetime taxable gift above $11.58 million will be taxed.

Hence amount of gift to be taxed =$5million+$7 million -$15000-$11.58 million=$420000-$15000=$415,000

Gift tax rate :

Up to $10,000-----10%

$10,001-$20,000-----20%

$20,001 to $40,000----22%

$40,001 to $60,000----24%

$60,001to $80,000-----26%

$80,001 to $100,000----28%

$100,001 to $150,000 ----30%

$150,001 to $250,000----32%

$250,001 to $500,000---34%

Calculation of gift tax is given below:

up to $10,000	$1,000	(10000*10%)
$10001 to $20,000	$2,000	(20000-10000)*20%
$20,001 to $40,000	$4,400	(40000-20000)*22%
$40,001 to $60,000	$4,800	(60000-40000)*24%
$60,001to $80,000	$5,200	(80000-60000)*26%
$80,001 to $100,000	$5,600	(100000-80000)*28%
$100,001 to $150,000	$15,000	(150000-100000)*30%
$150,001 to $250,000	$32,000	(250000-150000)*32%
$250,001 to $415,000	$52,800	(415000-250000)*34%
TOTAL GIFT TAX PAYABLE	$122,800