Question

Oscar, aged 70, and Maggie, aged 60, are married and jointly own a personal residence valued at $800,000. Oscar also owns stocks valued at $700,000; an art collection valued at $400,000; a retirement account valued at $900,000 - contributions entirely from the pretax income; $80,000 in cash; and $100,000 in miscellaneous assets. Oscar's will specifies that when he dies, his half of the personal residence will go to Maggie but that all his other assets will pass to his four children because Maggie owns sufficient income from a trust fund she inherited from her grandfather. Oscar has made no previous taxable gifts. Task: Oscar wants to know what his estate tax liability would be, if he dies in 2005. Each of Oscar's four children have three children, that is, Oscar has 12 grandchildren. If Oscar wants to begin transferring assets to his children and grandchildren, how much can he remove in value from his estate over the next five years through gift splitting and make annual transfers equal to the gift exclusion?