Question

Mr. Jackson died on June 19 when the total FMV of his property was $23 million and his debts totaled $2.789 million. His executor paid $23,000 funeral expenses and $172,000 accounting and legal fees to settle the estate. Mr. Jackson bequeathed $500,000 to the First Lutheran Church of Milwaukee and $1 million to Western Wisconsin College. He bequeathed his art collection (FMV $6.4 million) to his wife and the residual of his estate to his three children. Assume that Mr. Jackson made a substantial gift in 2011 and used $5 million of his lifetime transfer tax exclusion to reduce the amount on which gift tax was owed to zero, compute the estate tax payable on Mr. Jackson’s estate.

a. $2,766,400

b. $2,366,400

c. $2,966,400

d. $3,482,000

Answer 1

Solution:

Gross estate		$23,000,000
Debts of the decedent		$(2,789,000)
Funeral and administrative expenses		$(195,000)
Deductible bequests: First Lutheran Church	$500,000
Western Wisconsin College	$1,000,000
Mrs. Jackson's	$6,400,000
		$(7,900,000)
Mr. Jackson's taxable estate		$12,116,000

Taxable estate	$12,116,000
Estate tax exclusion	$(11,200,000)
Excess taxable estate	$916,000
Tax rate	0.40
Estate Tax	$366,400

Taxable estate	$12,116,000
Estate tax exclusion($11,200,000-$5,000,000)	$(6,200,000)
Excess taxable estate	$5,916,000
tax rate	0.40
estate tax	$2,366,400

Option (b) is correct answer $2,366,400