Interrelated Estate Tax

[Kathleen Reynolds]

#3082

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This program calculates the federal estate tax that is payable when part or all of the federal estate tax is payable out of a fund that otherwise qualifies for a federal estate tax charitable deduction and reduces that deduction, resulting in an interrelated (or circular) estate tax calculation.

The program takes the amounts of lifetime gifts, the gross estate, the deductions other than the charitable deduction, the amounts of any non-charitable and charitable gifts of fixed amounts, and the percentage of the residue that qualifies for the charitable deduction and calculates the federal estate tax payable, then recalculates the charitable deduction as reduced by the federal estate tax, then recalculates the federal estate tax, then recalculates the charitable deduction, and so forth, continuing the cycle of calculations until the results have converged on a result that remains the same each time the calculations are made.

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Entering Data

• Year of Death Enter the year the decedent died so that the program can apply the applicable tax rates, exemptions, and other rules. Valid inputs are years 2000 through 2050.
• Gross Estate Enter the amount of the gross estate for federal estate tax purposes including both estate assets and assets passing outside of the estate that are nevertheless included in the gross estate.
• Deductions Enter the total amount of all debts, administrative expenses, and other deductions other than the charitable deduction and the deduction (if any) for state death taxes.
• Adj. Taxable Gifts (After ’76) Enter the amount of any taxable gifts made previously. If there are no prior Adjusted Taxable Gifts, the tentative tax base will be equal to the Taxable Estate. The software does not handle gifts between 9/8/1976 and 1/1/1977 that used the specific exemption.
• Unified Credit Used by Gifts Enter the amount of unified credit used by prior gifts. If there are no prior gifts, then no unified credit has been used. Click the computer icon next to this field to calculate the maximum unified credit used by prior gifts.
• Other Credits Enter the amount of any foreign tax credit, credit for property previously taxed, or other credit other than the unified credit and any credit for state death taxes.
• State Death Tax Enter the amount of any state death tax that might be payable.
• Fixed Noncharitable Bequest Enter the total amount of any bequests of a fixed amount (i.e., not based on the value of the residue of the estate) that might be payable out of the gross estate to persons other than charities.
• Fixed Charitable Bequest Enter the total amount of any bequests of a fixed amount (i.e., not based on the value of the residue of the estate) that qualify for a charitable deduction.
• Percent of Residue to Charity Enter the percentage of the remainder of the estate (after payment of deductions, fixed bequests, and taxes) that will qualify for a charitable deduction. If all or part of the remainder is payable to a charitable remainder trust or charitable lead trust, the percentage will be based on the actuarial factor for the present value of the charitable interest in the trust.
• Estate Tax Calculations In 2010, the user can select the 35% rate or No Estate Tax.
• Spousal Unused Exclusion Enter the amount of any “deceased spousal unused exclusion amount” to which the decedent/donor is entitled by reason of the death of a spouse after 2010 whose estate tax return did not use up the full unified credit exclusion amount. Click on the computer icon to the left of the entry field to calculate the maximum exclusion amount for the year of the spouse’s death, taking into account the inflation rate entered for the exclusion.
• Inflation Rate for Exclusion Enter the rate of inflation to be applied to increase the unified credit exclusion amount in future years.

Results

The program takes the amounts of lifetime gifts, the gross estate, the deductions other than the charitable deduction, the amounts of any noncharitable and charitable gifts of fixed amounts, and the percentage of the residue that qualifies for the charitable deduction and calculates the federal estate tax payable, then recalculates the charitable deduction as reduced by the federal estate tax, then recalculates the federal estate tax, then recalculates the charitable deduction, and so forth, continuing the cycle of calculations until the results have converged on a result that remains the same each time the calculations are made.

 

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