Problem 20-1 (LO 3, 4) Determination of estate tax and planning alternatives.
Early in 20X0, Alex Bowe dies, leaving a gross estate of $1,400,000. He had outstanding debts of $50,000. Administrative expenses of the estate amounted to $50,000. Later that year, his wife dies, leaving an estate of $250,000 in addition to the property left to her by her husband. Administrative expenses on Mrs. Bowe's estate were $60,000. You are provided with the following partial unified estate and gift tax table:
Rate of Tax
Not on Excess over
Exceeding Exceeding Tax on Amount Amount in
(A) (B) in Column (A) Column (A)
$ 500,000 $ 750,000 $155,800 37%
750,000 1,000,000 248,300 39
1,000,000 1,250,000 345,800 41
1,250,000 1,500,000 448,300 43
Assume that the unified credit is $229,800, which corresponds with an applicable exclusion
amount of $700,000.
1. Ignoring state gift and estate taxes, determine the amount of federal estate tax on both estates if:
a. Mr. Bowe left his total estate to his wife, exercising the unlimited marital deduction.
b. Mr. Bowe left his wife an estate that will equate his taxable estate with the maximum unified credit.
2. What does the estate tax computation demonstrate in relation to exercising the unlimited marital deduction?