//neweonnectmheducation.comvilow/connect ht Favorites Took Help 14 Assignment 14

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//neweonnectmheducation.comvilow/connect ht Favorites Took Help 14 Assignment 148 10 Jones is seriously l and has $4 8 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will), Assuming any taxable transfer will be subject to the highest transfer tax rate. (Refer to Exhibit 25-1 and Exhibit 25-2) Required o. Determine how much gift tax Jones wil owe if he makes the transfers now nts b. If he makes a current gift, how much estate tax will Jones save if he dies after three years, during which time the property appreciates to $54 million? (Enter your answers in dollars and not in millions of dollars) erence a Amount of gift tax b Amount of estate tax savings

Explanation / Answer

If Ms. Fuller wants to make the transfer the property now by way of gift, she is entitled to get an exemption up to $5490000. Beyond this level, she needs to pay 40% by way of tax on the amount exceeding this limit.

Here, she has to pay: $6000000 - $5490000 = $510000 * 0.4 = $204000

If Fuller does not transfer the property now and leave it to be passed on on the event of her demise, the property value comes to $6800000.

Estate Tax should be borne by the descendants: 40% of $6800000 = $2720000

If Ms. Fuller wants to transfer the property now, the estate tax would be: 40% of $6000000 = $2400000

Estate Tax savings = $2720000 - $2400000 = $320000

The most advantageous option would be to pass on the property by way of a gift to her sons now, because that entails only $204000 of tax liability. It is not advisable to transfer the property in the form of a will either now or later.

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