Question

Suppose Samantha dies this year with a gross estate of $15 million and no adjusted prior gifts. Calculate the amount of estate tax due (if any) under the following scenarios:

1. Samantha’s husband, Mark, is the sole beneficiary.
2. Mark receives $10 million from the estate and the remainder is donated to the American Red Cross.
3. Mark receives $10 million from the estate and their son, Luke, receives $5 million.
4. Mark receives $10 million and $5 million is placed in a trust. The trustee is required to pay income to Mark for her life and the remainder to their son, Luke.

Part B Submission Requirements:

• Submit with all calculations shown.

Answer 1

a. If all the property in Samantha’s estate qualifies for the marital deduction, then there would be no taxable estate and there would be no estate tax due upon Samantha’s death.

Note that if Mark dies with a taxable estate of $15 million, he would owe an estate tax of $5.175 million {($15M - $3.5M exemption equivalent) x .45} (ignoring the potential for a credit on proximate deaths should Mark die within 10 years of Samantha’s death as well as differences in valuation and the effects of consumption over the interim between the deaths of Samantha and Mark).

b. Once again, if the property left to Mark qualifies for the marital deduction and if the property bequeathed to charity qualifies for the charitable deduction, then there would be no taxable estate and there would be no estate tax due upon Samantha’s death.

c. Assuming that the property left to Mark qualifies for the marital deduction, the calculation of the estate tax would proceed as follows:

Gross estate$ 15,000,000

Marital deduction- 10,000,000

Taxable estate and cumulative transfers$ 5,000,000

Tax on cumulative transfers$ 2,130,800

Unified credit (2010)- 1,455,800

Estimated estate tax due$ 675,000

d.The solution is identical to (c) above because the amount left in trust is a terminable interest that would not qualify for a marital deduction..

Assumption: Year of taxation.