Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 2

Determining and minimizing estate tax. Spencer Cook died on July 18 of the current year, leaving a gross estate of $4,600,000. Claims to be settled against that estate included funeral, administrative, and medical expenses of $180,000 and other debts of $210,000. Spencer's wife Sara has a considerable estate of her own, and she and Spencer have each agreed to leave $500,000 of their personal estate to charity. One year after Spencer's death, Sara passed away. Allowable expenses against Sara's estate totaled $420,000 excluding charitable bequests.
Using the estate tax rates and unified credit in the text:
1. Determine the estate tax to be paid by both Spencer and Sara assuming that no credit shelter trusts are employed and that Sara's gross estate is $7,300,000 including the assets inherited from Spencer.
2. Assume that prior to death Spencer and Sara both created a credit shelter trust calling for the surviving spouse to be the income beneficiary and their children to be the recipient of the principal. The principal of the trust is equal to the applicable exclusion amount. Determine the estate tax to be paid by both Spencer and Sara assuming that Sara's gross estate at the date of her death was $5,400,000 including the assets inherited from Spencer.