The cash gift to Mike's son would not be included as part of the gross estate because gifts with three years of death are not included. Gifts within three years of death are added back to the taxable estate to determine the taxable base amount.
The alternate valuation date is only used when the gross estate and tax liability are both less than the date of death value.
The adjusted gross estate is the gross estate less expenses such as casualty losses, court costs, funeral and administrative expenses, taxes, mortgage debt and other debts against the estate.
Adjusted gross estate less marital deduction, charitable contributions and state death taxes equals taxable estate. $8,000,000 less ($2,000,000 + $1,000,000 + $500,000) = $4,500,000
For the tax year 2011, the annual estate tax exclusion amount is $5 million. For taxable estates in excess of the $5 million exclusion, they could be taxed as high as 35%. The annual gift tax exclusion amount for 2011 is $13,000.
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