ADVANCED TAX - Transfer Taxes & Wealth Planning
Billy is a single individual who possess a life insurance policy worth $300,000 that will pay his 2 friends $800,000 upon his death. This year, Billy transfered the policy and all incidents of ownership to an irrevocable trust that pays income annually to his two friends for 15years and then distributes the corpus to them inequal shares.
a. Calculate the amount of gift tax due (if any) on the gift. Assume that Billy has made only one prior taxable gift of $5.2 million on 2011.
b. Calculate the amount of cumulative taxable transfers for estate tax purposes if Billy dies this year but after the date of the gift. At the time of his death, Billy's estate has so far $10 million and it is to be divided in equal shares between his two friends.