Comprehensive Problem. Dave L. Jones, a calendar-year taxpayer using the cash method of accounting, was scared to death on Halloween night, October 31, 2016. Under the terms of the will, Dave devised and bequeathed all of the property he owned to his wife, Hildegard, except for a cash gift of $100,000 to the School of Accountancy at Louisiana Tech University, a condominium in Cancun, Mexico, to his beloved son, Billy Bob, a condominium in West Palm Beach, Florida, to Lee Ray Brown, and a $20,000 cash gift to Peggy Sue Elmore (who befriended him late in life)
A review of the executor's fi les and discussions with Mr. Jones's attorney reveal the following facts:
a. Mr. Jones's assets at (1) date of death and (2) six months later are as follows:
Fair Market Value
Real Estate 10/31/16 4/30/17
Personal residence $ 500,000 $ 500,000
Cancun condominium 3,500,000 3,450,000
West Palm Beach condominium 3,000,000 3,525,000
Stocks and Bonds
Ford Motor Co. bonds, 60 10% bonds, face value, $1,000 each. Interest payable semiannually on July 1 and January 1 72,000 75,000
Interest accrued on Ford Motor Co. bonds from July 1, 2014, to October 31, 2014 2,000 2,000 Littleton Telephone Co., common stock, 1,000 shares traded over the counter $10 per share on October 31, 2016, and $20 on April 30, 2017 10,000 20,000 West Lumber Co., traded NYSE, 5,000 shares common stock $100 per share on October 31, 2016, and $50 per share on April 30, 2017 500,000 250,000
Cash
Checking Account No. 23-000, First National Bank
of Greenville 15,000 15,000
Money Market Savings Account No. 1-23456,
Beaver Run Savings & Loan 275,000 275,000
Life Insurance
Policy No. 1 provided for $100,000
payable to wife with no incidents of ownership 100,000 100,000
Policy No. 2 provided for $100,000 to wife,
listed as owner under state law, but Dave
retained the power to change the beneficiary 100,000 100,000
Other Assets
1959 White Cadillac El Dorado Convertible,
red interior with bobbing dog in rear window 20,000 20,000
Civil war memorabilia 10,000 10,000
5 carat diamond ring, blue-white perfect 50,000 50,000
Miscellaneous personal effects (clothing and shoes) 6,800 6,800
Miscellaneous household goods (dishes, pots and pans,
plants, silverware, and tools) 5,000 5,000
Furniture 25,000 25,000
Oriental rugs 18,000 18,000
b. On November 7, 1976, Mr. Jones, pursuant to the legal firm's suggestion of utilizing the annual exclusion and the specific exemption, gave $33,000 to his son Billy Bob. (Note that a $6,000 adjustment to the unified credit is required because of this transaction.)
c. Mr. Jones has made annual gifts of the exact annual exclusion amount to his son and each of his grandchildren each year (including 2016) since 1977. Other than these gifts and the one above, he made no gifts during his life.
d. Dividends of $2 per share were declared on the West Lumber Co. stock on October 1, 2016, but were not paid until November 15, 2016. Assume Mr. Jones was alive on the date of record.
e. Interest of $6,500 accrued on the savings account at date of death.
f. Fees:
Funeral expenses $12,000
Attorney's fees 30,000
Accounting fees 30,000
Executor's fees 40,000
Appraisal fees 2,300
g. Mortgage on personal residence, United Financial Mortgage Corp., 10 percent, $50,000.
h. Debts:
Accrued property taxes on personal residence $2,000
Accrued property taxes on West Palm Beach condo 3,000
i. Taxes:
North Carolina Inheritance Tax $45,000
Mexico Estate Tax 12,000
j. A proviso in the will provided that the marital deduction for property passing to the wife shall not be reduced for death taxes, foreign death taxes, and funeral and administrative expenses.
k. The executor has decided to take all administrative expenses on the estate return.
l. Assume the executor elected to value the assets in the gross estate at their date of death values.
Required: Compute the net estate tax payable (note that the amount paid to Mexico is the amount of the foreign tax credit).