Hank and Wendy are married to each other, are both US citizens, and have two minor children. Their property consists of the following:
- Commercial property (cost $850,000; fair market value $5,300,000) held in Hank's name, as his separate property.
- Money market accounts in the amount of $2,850,000; held in Hank's and Wendy's names as joint tenants.
- Life insurance (death benefit of $3,750,000, cash value of $623,000); insuring Hank's life, owned by Hank, with Wendy as the primary beneficiary and the children as contingent beneficiaries. Hank used his separate property funds to pay the premiums.
- Life insurance (death benefit of $1,000,000, cash value of $147,000) on Wendy's life, owned by Wendy, with the children as the primary beneficiaries. Wendy used her separate property fund to pay premiums.
- Home (cost $650,000; fair market value $3,850,000); held by Hank and Wendy as joint tenants. The home has a $400,000 mortgage.
- Market securities with a basis of $120,000 and a fair market value of $1,500,000, which was given to Hank by his father. Hank's will provides that his entire estate be distributed outright to Wendy. Assume that Hank and Wendy have resided in California during their lifetimes.
What is the federal estate tax paid on Hank's death under his present estate plan? Assume that: (a) Hank's death occurred in 2011 when exemption amount was $5,000,000; (b) Hank is survived by Wendy; (c) there are no funeral, last illness or administration expenses; and (d) Hank did not make any gifts during his life time.