Case Estate Taxes on Saul Schwab’s Estate Saul Schwab, of Knoxville, Tennessee, was 65 when he…

Case

Estate Taxes on Saul Schwab’s Estate

Saul Schwab, of Knoxville, Tennessee, was
65 when he retired in 2010. Camille, his wife of 40 years, passed away the next
year. Her will left everything to Saul. Although Camille’s estate was valued at
2,250,000, there was
no estate tax due because of the 100 percent marital deduction. Their only
child, Eli, is married to Kathleen. They have four children, two in college and
two in high school. In 2011, Saul made a gift of Apple stock worth 260,000 jointly to
Eli and Kathleen. Because of the two 14,000 annual
exclusions and the unified credit, no
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Case

Estate Taxes on Saul Schwab’s Estate

Saul Schwab, of Knoxville, Tennessee, was
65 when he retired in 2010. Camille, his wife of 40 years, passed away the next
year. Her will left everything to Saul. Although Camille’s estate was valued at
2,250,000, there was
no estate tax due because of the 100 percent marital deduction. Their only
child, Eli, is married to Kathleen. They have four children, two in college and
two in high school. In 2011, Saul made a gift of Apple stock worth 260,000 jointly to
Eli and Kathleen. Because of the two 14,000 annual
exclusions and the unified credit, no gift taxes were due. When Saul died in
2015, his home was valued at 850,000, his
vacation cabin was valued at 485,000, his
investments in stocks and bonds were valued at 1,890,000, and his
pension funds were worth 645,000 (Eli was
named beneficiary). Saul also owned a life insurance policy that paid proceeds
of 700,000 to Eli. He
left 60,000 to
his church and 25,000
to his high school to start a scholarship fund in his wife’s name. The rest of
the estate was left to Eli. Funeral costs were 15,000. Debts were 90,000 and
miscellaneous expenses were 25,000. Attorney and
accounting fees came to36,000. Use
Worksheet 15.2 to guide your estate tax calculations as you complete these
exercises.

Critical Thinking Questions

1. Compute the value of Saul’s probate
estate.

2. Compute the value of Saul’s gross
estate.

3. Determine the total allowable
deductions.

4. Calculate the estate tax base; taking
into account the gifts given to Eli and Kathleen (remember that the annual
exclusions “adjust” the taxable gifts).

5. Use Exhibit 15.7 to determine the
tentative tax on estate tax base.

6. Subtract the appropriate unified tax
credit (Exhibit 15.8) for 2015 from the tentative tax on estate tax base to
arrive at the federal estate tax due.

7. Comment on the estate shrinkage
experienced by Saul’s estate. What might have been done to reduce this
shrinkage? Explain.

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