Question

Part 1: John, who was single, died in 2018 and has a gross estate valued at $8,525,000. Six months after his death, the gross assets are valued at $9,050,000. The estate incurs funeral and administration expenses of $145,000. John had debts totaling $130,000 and bequeathed his estate to his children. During his life, John made no taxable gifts. 1.What is the amount of John’s taxable estate? 2.What is the tax base for computing John’s estate tax? 3.What is the amount of estate tax owed if the tentative estate tax (before credits) is $3,235,800? 4.Alternatively, if, six months after his death, the gross assets in John’s estate declined in value to $7,500,000, can the administrator of John’s estate elect the alternate valuation date? What are the important factors that the administrator should consider as to whether the alternate valuation date should be elected?

Answer 1

FORM 706 Estate Tax Return

Gross Estate	8,525,000
Non-discretionary Deduction
Funeral Expenses	145,000
Debts Outstanding	130,000
Adjusted Gross Estate	8,250,000
Discretionary Deduction	0
Taxable Estate	8,250,000
Adjusted taxable gifts	0
Tentative tax base	8,250,000
X Unified tax rates
Tentative Estate tax
<Unified Credits>
Net Estate Tax

1. John's taxable estate = $8,250,000

2. Tax base for computing John's estate tax =  $8,250,000

3. When tentative estate tax ( before credits) = $3,235,800

Less Unified credit = $3,235,800 (maximum credit allowed = $4,417,800)

Therefore, Net estate tax = $0

4. When the gross assets on the alternative valuation date declined to $7,500,000, administrator of John's estate can elect alternate valuation date.

5. Important factors that the administrator should consider as to whether the alternate valuation date should be elected are :

• The estate must be subject to federal estate tax
• The election of alternate valuation date must reduce the Gross estate and estate tax due.