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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28856
Experience:  Taxes, Immigration, Labor Relations
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My wife and I are having a debate. We would like you to consider

Resolved Question:

My wife and I are having a debate. We would like you to consider the estate & gift tax situation in 2008 (not today.) In 2008 let's say a single person had an estate worth $6,000,000. In 2008 the estate tax exclusion was $2,000,000 and the gift tax exemption was $1,000,000. If during their lifetime, someone gifted $1,000,000 (and used the gift tax exemption) When they died the exclusion for the $1,000,000 would go against their estate tax and they, in essence, would only have a $1,000,000 estate tax exclusion. In another words, would your taxable estate be $4,000,000 or $3,000,000?
We're talking about Federal tax.

Thanks
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

LEV :

Hi and welcome to Just Answer!

Customer:

hello

LEV :

Please see estate tax form 706 for 2008 - http://www.irs.gov/pub/irs-prior/f706--2008.pdf


Gross estate tax is calculated on the line 8 – after deducting allowable $2,000,000


Allowable unified credit – that is based on the total amount of lifetime taxable gifts - is calculated on the line 11 – thus it is not a deduction, but a credit against estate taxes.

LEV :

So your assumption is incorrect $2,000,000 eexclusion is used regardless if any taxable gifts were made, but taxable gifts will reduce an additional unified credit.

LEV :

For your example - the gross estate $6,000,000 in 2008 - the taxable estate will be $4,000,000 (after exclusion) and estate taxes will be calculated based on that amount. There will be unified credit against estate tax - but that credit will be reduced by lifetime taxable gifts and may be zero if fully used over the decedent's lifetime.

Customer:

assuming 50% estate tax, your heirs would pay 2 million dollars in taxes?

LEV :

There are other exclusions - for instance Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims - but as a raw estimat eyou are correct.


Customer:

yes, we're only talking "raw" estimates. so to confirm, you are single and you made a gift of $1,000,000 in year 2004. You die in 2008 with $6,000,000 in your checking account. Your heirs will owe $2,000,000 in estate tax or would the $1,000,000 gift will reduce your $2 million exemption which means your heirs would of paid $2,500,000?

LEV :

Consider your example and assumptions - the estate tax will be $2,000,000 and no unified credit would be allowed because lifetime taxable gift allowances is maxed out.

LEV :

Total estate $6,000,000; taxable estate $4,000,000; estate taxes $2,000,000; no unified credit against estate taxes.

Customer:

Thank you.

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