Question

Determining and minimizing estate tax. Spencer Cook died on July 18 of the current year, leaving a gross estate of $8,600,000. Claims to be settled against that estate included funeral, administrative and medical expenses of $180,000 and the other debts of $210,000. Spencer’s wife Sara has a considerable estate of her own, and she and spencer have each agreed to leave $500,000 of their personal estate to charity. One year after Spencer’s death, Sara passed away. Allowable expenses against Sara’s estate totaled $420,000 excluding charitable bequests. Using the estate tax rates and unified credit in the text:

Exhibit 20-1: Unified Transfer Tax Rate Schedule for the Year 2014

A	B	C	D
Taxable Amount Over	Taxable Amount Not Over	Tax on Amount in Column A	Rate of Tax on Excess Over Amount in Column A
$0	$10,000	$0	18%
10,000	20,000	1,800	20%
20,000	40,000	3,800	22%
40,000	60,000	8,200	24%
60,000	80,000	13,000	26%
80,000	100,000	18,200	28%
100,000	150,000	23,800	30%
150,000	250,000	38,800	32%
250,000	500,000	70,800	34%
500,000	750,000	155,800	37%
750,000	1,000,000	248,300	39%
1,000,000	N/A	345,800	40%

  

1 Determine the estate tax to be paid by both Spencer and Sara assuming that no credit shelter trusts are employed and that Sara’s gross estate is $13,300,000 including the assets inherited from Spencer.

2 Assume that prior to death Spencer and Sara both created a credit shelter trust calling for the surviving spouse to be the income beneficiary and their children to be the recipient of the principal. The principal of the trust is equal to the applicable exclusion amount. Determine the estate tax to be paid by both Spencer and Sara assuming that Sara’s gross estate at the date of her death was $11,400,000 including the assets inherited from Spencer.

Answer 1