A client made lifetime taxable gifts of $800,000 ten years prior to her death. She had an estate worth $3,000,000 at death. The value of the property gifted during her lifetime is worth $1,600,000 at her death. On which of the following is her tentative tax figured prior to applying the applicable exclusion amount?

A client made lifetime taxable gifts of $800,000 ten years prior to her death. She had an estate worth $3,000,000 at death. The value of the property gifted during her lifetime is worth $1,600,000 at her death. On which of the following is her tentative tax figured prior to applying the applicable exclusion amount?

• A. $3,000,000
• B. $3,800,000
• C. $800,000
• D. $4,600,000

Answer: (B)

The amount used to figure the tentative transfer tax base combines what the decedent owned at death with the value of any taxable gifts made during her lifetime. The value of gifts is taken as the amount actually transferred, not what those assets are worth at death. In this case, the estate value at death is 3,000,000 and lifetime taxable gifts were 800,000. Add them together to get 3,800,000. The fact that the gifted property later appreciated to 1,600,000 by death doesn’t affect the base, because the decedent no longer owned that property when she died. The next step would be applying the applicable exclusion amount to determine the taxable portion and the tax.

The amount used to figure the tentative transfer tax base combines what the decedent owned at death with the value of any taxable gifts made during her lifetime. The value of gifts is taken as the amount actually transferred, not what those assets are worth at death. In this case, the estate value at death is 3,000,000 and lifetime taxable gifts were 800,000. Add them together to get 3,800,000. The fact that the gifted property later appreciated to 1,600,000 by death doesn’t affect the base, because the decedent no longer owned that property when she died. The next step would be applying the applicable exclusion amount to determine the taxable portion and the tax.