Santiago Hernandez’s was 65 when he retired in 2014. Maria, his wife of 40 years, passed away the next year. Her will left everything to Santiago. Although Maria’s estate was valued at $2,250,000, there was no estate tax due because of the 100 percent marital deduction. Their only child, Samuel, is married to Luna. They have four children, two in college and two in high school. In 2015, Santiago made a gift of Microsoft stock worth $260,000 jointly to Samuel and Lina. Because of the two annual exclusions and the unified credit, no gift taxes were due. When Santiago died in 2018, 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 at $645,000 (Samuel was named beneficiary). Santiago also owned a life insurance policy that paid proceeds of $700,000 to Samuel. 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 Samuel. Funeral costs were $15,000. Debts were $90,000 and miscellaneous expenses were $25,000. Attorney and accounting fees came to $36,000.

Use Worksheet 15.1 to guide your calculations as you complete these exercises.

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

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

3. Determine the total allowable deductions.

4. Calculate the estate tax base, taking into account the gifts to Samuel and Luna (remember that the annual exclusions “adjust” the taxable gifts).

5. Use Exhibit 15.8 to determine the tentative tax on estate tax base.

6. Subtract the appropriate unified tax credit (Exhibit 15.7) for 2018 from the tentative tax on estate tax base to arrive at the federal estate tax due.

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

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Name: Santiago Hernandez Line Computation 1 2 3 Result 4 Subtract sum of a) Funeral Expenses Subtract: 5 Result Add 6 78 Result Compute Tax 9 Subtract sum of Computing Federal Estate Tax Due Date: June 4, 2018 10 Result 11 Subtract 12 Result: Item Gross Estate [850,000 + 485,000 + 1,890,000+ 645,000 + 700,000] b) Administrative Expenses includes miscellaneous expenses c) Debts Total Adjusted Gross Estate a) Marital deduction b) Charitable deduction Total Taxable estate Post-1976 taxable gifts (Assume that wife has died at time of gift. Gift made to both Samuel and Luna, so two exclusions apply. So, taxable give is $230,000. 260,000 less 30,000 [actually was 14,000 in 2015, but that is not in text, so use 2018 amount] Estate Tax Base Tentative tax on estate tax base Other Credits Federal estate Tax Due Amount Use Exhibit 15.8 to calculate the tentative tax. Use Exhibit 15.7 to determine the appropriate unified tax credit. $15,000 61,000 90,000 85,000 a) Gift Tax paid on post 1976 gifts b) Unified Tax Credit--2018 credit 4,417,800 230,000 0 Total Amount $4,570,000 (166,000) $4,404,000 (85,000) $4,319,000 $4,549,000 $1,765,400 4,417,800 0 0 $0