Estate Tax Computation

Tax Return 1

EstateTax Computation




Land 4900000 Alice(daughter)

Stock 800000 Brandon(Son)

Personalresidence 800000 Allen (Husband)

Lifeinsurance 1000000 Alice (Daughter)

Cash 300000 AmericanLung asset

Total 8200000

Fairvalue of all estate property 8200000

Add:incomplete gifts within three years 0

Gifttaxes paid 82000

Grossestate value 8282000

Deduct:charitabledeductions 300000

Totaltaxable estate 7982000

Adjustedlifetime taxable gifts 1200000

Totaltaxable transfers 9182000

Grossunified transfer tax on total taxable transfers (345800 + (40%*8182000)3618600

Less:creditfor prior gift taxes paid (82000)

Netunified estate tax liability 3536600


Afederal transfer tax spread over to lifetime transfers that are alsoreferred to as the gift tax and the transfers when death occurs, alsoknown as Estate Tax. The two events are taxable, and they are definedand overseen by Federal estate tax rules. According to federal estatetax rules, determining the gross value of an estate includes the fairmarket value of all property owned at the date of death.

Accordingto Jenifer’s case, the following assets shall be included.

• Landwith a value of 4900000 bequeathed to Alice, the daughter,

• Stockwith a value of 800000 bequeathed to Brandon, the son,

• Cashof 300000 gifted to American Lung Association,

•Residentialproperty and its furnishes left as a marital inheritance to thespouse Allen the husband,

• Anda life insurance policy of 1000000 to Alice the daughter, whereJennifer still held the right to change the beneficiary.

• Thiswas gifted seven years before her death.

Thegross value of the estate totaled to 8200000.


Thegross value of the estate is also the fair value of the estatetotaling to 8200000.

Fromthis amount any incomplete gifts within three years was null. Thelifetime gifts were 1200000 and had a tax initially paid of 82000.This was added to the fair value of the estate as it was a prepaidasset to the estate.

Anamount of 8282000 accounted for was the gross estate value.


Accordingto federal estate tax, some deductions are allowed against the grossestate in arriving at the taxable estate.

Accordingto Jennifer’s case, the following deduction was applicable.

• Charitablededuction bequeathed to American Lung Association of 300000. This isan unlimited deduction to a recognized charity.

Inthe same case, several deductions were not applicable and in thiscase:

• Maritaldeduction



• Losses

• Expensesof last illness

• Funeralexpenses, deductible by the estate.

Fromthe above deductions, total taxable estate amounted to 7982000.


Thegross estate of an individual comprises of the fair market value ofan all-inclusive property that is owned at the time of death, thismay comprise of any accumulated property or income owned by thedescendant during the time of death as well as loans that thedescendant may be having. The computation of Estate tax is on acumulative basis. Gross estate is added to total adjusted lifetimegifts (those made after 1976). In Jennifer’s case, lifetime giftsof 2011 amounting to 1200000 shall be recognized.

Creditsought to be included in the tax computation of Jennifer’s estateare:

• Unifiedcredit

• Priorgift taxes paid credit. It totaled to 82000.

• Priortransfer taxes credit

• Foreigndeath tax credit.

Grossunified transfer tax on total taxable transfers (345800 + (40%*8182000)3618600

Less:credit for prior gift taxes paid (82000)

Netunified estate tax liability3536600

Usingthe unified transfer tax rate schedule of 2013, a taxable amountexceeded the maximum 1000000 amount with a tax of 345800. The excessamount of 8182000 attracted a tax rate of 40% that the gross unifiedtransfer tax amounted to 3618600.

Taxespreviously paid was deducted leading to a net unified estate taxliability of 3536600.


Lifetimegifts and also transfers during the time of death are both taxedunder one unified transfer tax rate schedule that is the recognizedsource of rates where the tax is computed on a cumulative basis andthen reduced by any gift taxes paid. This applies to lifetime giftsthat are not based on considerations but are motivated by generosity.Based on that Jennifer died in 2013 upon which her estate was to bedistributed to various identified persons of her will, the above rulemust apply.

Thegross estate property may be reduced by deductions aimed for atcertain transfers such as charitable transfers, administrativeexpenses marital transfers and debts. The Gross estate tax liabilitymay also be reduced by the credits for the unified credit, certaintransfer taxes paid and gift taxes paid. The gifts should then betaxed at their fair market values each with a maximum 14000 annualexclusion per done per year. Gross gifts are further reduced bycharitable deductions, marital deductions, and any gift-splittingelection. Jennifer’s gifts of 2011 are only subject to a charitablededuction of 300000 and the prepaid tax of 82000.

Lifetimegifts 1200000

Taxableamount over 1000000 345800

Excessamount (200,000 * 40%) 80000


Deducttaxes paid (82000)


Charitabledeductions 300000



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