Answered>Order 13914

1) Should individuals engage in estate planning to avoid the federal inheritance tax, or is that unethical? 

2) Many years ago James and Sergio purchased property for $450,000. Although they are listed as equal co-owners, Sergio was able to provide only $200,000 of the purchase price. James treated the additional $25,000 of his contribution to the purchase price as a gift to Sergio. If the property is worth $900,000 at Sergio’s death, what amount would be included in Sergio’s estate if the title to the property was tenants in common? What if the title was joint tenancy with right of survivorship?

3) Montgomery has decided to engage in wealth planning and has listed the value of his assets (attached). The life insurance has a cash surrender value of $120,000, and the proceeds are payable to Montgomery’s estate. The Walen Trust is an irrevocable trust created by Montgomery’s brother 10 years ago and contains assets currently valued at $800,000. The income from the trust is payable to Montgomery’s faithful butler, Walen, for his life, and the remainder is payable to Montgomery or his estate. Walen is currently 37 years old, and the §7520 interest rate is currently 5.4 percent. Montgomery is unmarried and plans to leave all his assets to his surviving relatives.

Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and has never made any taxable gifts.

Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $1 million, and Montgomery used his 2006 applicable credit to avoid paying any gift tax.

Calculate the amount of the estate tax due (if any), assuming Montgomery dies this year and made one taxable gift in 2006. The taxable gift was $5 million, and Montgomery used his $1 million 2006 applicable credit to reduce the gift tax in 2006. Montgomery plans to bequeath his investments to charity and leave his remaining assets to his surviving relatives.