McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 24

Hank possessed a life insurance policy worth $50,000 that will pay his two children a total of $400,000 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.a.Calculate the amount of gift tax due (if any) on the 2006 gift, given Hank has made only one prior taxable gift of $1. 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 $10 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 $10 million to be divided in equal shares between his two children.