Question

Fred is retired and living on a pension. He has accumulated almost $10 million of property he would like to leave to his children. However, Fred is afraid much of his wealth will be eliminated by the Federal Estate Tax.

• Is Fred’s fear well founded?
• In contrast, what would you advise Fred if he had accumulated $20 million in property?

Answer 1

A)Fred is retired and living on a pension and He has accumulated almost $10 million of property he would like to leave to his children.But Fred is a tax payer do not worry about the Federal Estate Tax because the current ( 1919 -1920 - Federal Estate Tax) Exemptions is $11.58 million at the time of death. The pension of Fred will stopped at the time of death.Fred's accumulated property is $10 million. So he is Exempted from the Federal Estate Tax.

B) Fred is eligible for Federal Estate Tax ( 1919 -1920 - Federal Estate Tax) is his accumulated property more than $11.58 million at the time of death. But Fred's accumulated property is $20 million.So he is liable for Federal Estate Tax

Fred's taxable amount = $20 million - $11.58 million = $8.42 million

Slab for Federal Estate Tax (1919 -1920) for

$1,000,001 and up(Taxable amount) = $345,800 Plus 40% of the amount over $1,000,000

Slab for Federal Estate Tax = $345,800+ 40%*( $8,420,000 - $1,000,000 )

= $345,800+ 40%*7,420,000

= $345,800 + $2,968,000

= $3,313,800

Fred has to pay $3,313,800 as Federal Estate Tax for his accumulated $20 million in property