Hank possessed a life insurance policy worth $32,000 that will pay his two children a total of $515,000 upon his death. In 2006, Hank transferred the policy and all incidents of ownership to an irrevocable trust that pays income annually to his two children for 15 years and then distributes the corpus to the children in equal shares. Assume estate and generation skipping taxes are not repealed and provisions effective in 2009 continue in effect for 2010.
Prior to 2012, taxable transfers between $500,000 and $750,000 were taxed at 37%, between $750,000 and $1 million were taxed at 39%; between $1 million and $1.25 million were taxed at 41%; between $1.25 million and $1.5 million were taxed at 43%; and taxable transfers over $1.5 million were taxed at a top rate of 45%. In 2006, taxable transfers over $2 million were taxed at 46 percent and 47 percent in 2005.
The annual exclusion amount varies when transfers are cumulated in making the tentative tax computations under § 2502(a). In 1981 the annual exclusion was increased from $3,000 to $10,000, and for gifts made after 1998 this amount is adjusted annually for inflation in multiples of $1,000. The limit remained at $10,000 through 2001, but was increased to $11,000 for 2002 through 2005 and $12,000 for 2006 through 2008. The annual exclusion is $13,000 for gifts since 2008
A). Calculate the amount of gift tax due (if any) on the 2008 gift, given Hank has made only one prior taxable gift of $1.5 million in 2005.
B). Estimate the amount of estate tax due if Hank were to die more than three years after transferring the insurance policy. At the time of his death, Hank estimates he will have a probate estate of $15 million to be divided in equal shares between his two children.
C). Estimate the amount of estate tax due using the 2011 rate schedule and unified credit if Hank were to die within three years of transferring the insurance policy. At the time of his death, Hank estimates he will have a probate estate of $15 million to be divided in equal shares between his two children.