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Kathryn and her husband earned a considerable fortune during their working lives, but Kathryn
is now retired and her husband is deceased. Kathryn has $20 million available to pass along to
her two children, and has made provisions in her will to divide her estate equally between the
children. The $20 million currently sits in a safe deposit box in a bank, where unfortunately it
earns no return (though of course it also does not lose value).
Question:
Assume that the estate and gift tax rate is 40 percent, and there is a $10 million exemption, so
any portion of an estate or lifetime gifts above $10 million is subject to a 40 percent tax. If
Kathryn leaves the $20 million in her safe deposit box until she dies, then how much will each of
her children receive after taxes?
Solution
Hi,
Please find the correct answers as follows:
Since there is an exemption of $10 million, any amount over and above will have to bear the
taxes
Tax Payable = ($20 million - $10 million)*40%
=$4 million
Amount left after tax payment = $20 million - $4 million
=$16 million
Hence, the amount each child will recieve = $16 million/2
=$8 million
Kathryn and her husband earned a considerable fortune during their wor.docx

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Kathryn and her husband earned a considerable fortune during their wor.docx

  • 1. Kathryn and her husband earned a considerable fortune during their working lives, but Kathryn is now retired and her husband is deceased. Kathryn has $20 million available to pass along to her two children, and has made provisions in her will to divide her estate equally between the children. The $20 million currently sits in a safe deposit box in a bank, where unfortunately it earns no return (though of course it also does not lose value). Question: Assume that the estate and gift tax rate is 40 percent, and there is a $10 million exemption, so any portion of an estate or lifetime gifts above $10 million is subject to a 40 percent tax. If Kathryn leaves the $20 million in her safe deposit box until she dies, then how much will each of her children receive after taxes? Solution Hi, Please find the correct answers as follows: Since there is an exemption of $10 million, any amount over and above will have to bear the taxes Tax Payable = ($20 million - $10 million)*40% =$4 million Amount left after tax payment = $20 million - $4 million =$16 million Hence, the amount each child will recieve = $16 million/2 =$8 million