This year Nathan transferred $7 million to an irrevocable trust established for the benefit of his nephew. The trustee is directed to accumulate income for the next five years before distributing the trust corpus to Nathan's nephew. In past years Nathan has made taxable gifts of $6 million and used an applicable credit on an exemption equivalent of $5 million. What amount of gift tax, if any, must Nathan remit?

Question

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Nathan has already used $5 million of his exemption and has $6.4 million remaining ($11.4 million - $5 million). The $7 million transfer exceeds the remaining exemption by $600,000, which is subject to gift tax. The tax on $600,000 is $240,000.

This Year Nathan Transferred $7 Million to an Irrevocable Trust