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The boya case RYAN AND MELISSA BACKGROUND Ryan, age 62, and Melissa, age 23, have been dating for about a year and a half. Ryan and Melissa met when Ryan was on a vacation in the south of France. Molissa was a beautiful French artist selling paintings at the market by Ryaris hotel. After a month-long romance, Ryan asked Melissa to roturn to the United States with him, Aithough not a United States citizen, she has maintained residence in the United States for 15 months. While they have no current plans to marry, they recently found out that Melissa is expecting her first child. Although no paternity tests have been conducted, both Ryan and Melissa are confident the child is Ryan's. When they found out Melissa was pregnant, Melissa moved into the 4-bedroom home Ryan owns so they could prepare for the baby. whom they plan to name Kole. To prove to Melissa that he was serious about them being a family, Ryan gave Melissa $12,920,000 in a money market account last month. The money market account is the only asset Melissa owns. Ryan also purchased a $2,000,000 life insurance policy on his Ke and named Melissa as the beneficiary. Ryan was previously married and has two children from that marriage, Kati, age 38, and Karli, age 28. Both daughters are happily married and have children of their own. Kat has two children, Cody, age 3, and Kali, age 13. Karli was unable to have children of her own; therefore, she adopted a little girt, Riley, age 2, from Russia last year. Ryan and his first wife, Beth, have been divorced for ten years and are not on speaking terms. After their marriage, Ryan was required to pay Beth alimony in the amount of $10.000 per month. When the court order expired at the end of last year. Ryan felt bad, so he continues to give Beth $10,000 per month on the first of each month. Although Ryan has high blood pressure, he is otherwise healthy. Melissa has never been married. She is in excellent health and leamed just a few days ago that they are having a baby boy, who is expected to be healthy. Ryan is retired and owns The Bungalow, a local bar and grill, while Melissa is currently unemployed. Ryan and Melissa live in a community property state. Ryan's mother, Carrie, also lives with him, Carrie is 82 years old and in failing health. She was recently diagnosed with Parkinson's disease. While she is unable to feed or bathe herself, she is expected to live for several more years. Carrie has spent all her retirement assets and relies exclusively on Social Security. The only substantial asset she owns is a life insurance policy covering her life. The policy has a $100,000 death benefit and is not a modified endowment contract (MEC). The policy does not have a named beneficiary. For estate planning purposes, Ryan estimates the following expenses at his death: 1. The last illness and funeral expenses are expected to be $100.000. 2. Estate administration expenses are estimated at $180,000 RYAN'S SECOND LAST WILL AND TESTAMENT (Handwritten and signed by Ryan (no witness signatures) after his divorce from Beth): I, Ryan, being of sound mind and wishing to make proper disposition of my property in the event of my death, do declare this to be my Last Will and Testament. 1. I have two children, namely Kati and Karli. I have adopted no one nor has anyone adopted me. 2. I leave all assets to my children. 3. If any of my children should predecease me, die within six months from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to her, then such interest will pass to the said legatee's descendants, otherwise her share of all of my property of which I die possessed shall be paid equally among my surviving children. 4. I name my daughter Kati, to serve as the executor of my estate with full seizin and without bond. 5. I direct that the expenses of my last illness, funeral, and the administration of my estate shall be paid by my executor as soon as practicable after my death and allocated against the residual estate. CURRENT YEAR GIFTS TO GRANDCHILDREN Ryan made the following gifts to his grandchildren during the current year: - Seeing how Ryan's mom outlived her assets, Ryan is afraid his grandchildren may have the same fate. To assist them with their retirement income, Ryan decided to establish a trust for the children. The trust is an irrevocable trust and he funded it in the current year with $400,000. The trust will accumulate income until each grandchild reaches age 50. When a grandchild reaches age 50 , he/she will begin receiving an annuity for their life. When all of the grandchildren die, if there are any remaining assets then the trustee may distribute those assets to a charitable organization of their choosing. - Ryan sent a check in the amount of $6,000 directly to Kali's private school to pay her tuition. - Ryan also gave both Cody and Riley $6,000 each. Assume Ryan paid gift tax of $1,362,518 in 2021 for taxable Assume Ryan paid gift tax of $1,362,518 in 2021 for taxable gifts made in 2020 . These were his first taxable gifts. RYAN'S STATEMENT OF FINANCIAL POSITION (AFTER THE GIFT TO MEL.ISSA) Tecal Assets Notes to Financial Statements: 1. Assets are stated at fair market value (rounded to even dollars). 2. Liabilities are stated at principal only (rounded to even dollars). 3. The bungalow was valued last week for insurance purposes. The valuation includes $100,000 for the land and $1,400,000 for the business. 4. The qualified plan has Beth listed as the designated beneficiary. The investment portfolio is a transfer on death (TOD) account with Kati and Karli as the listed beneficiaries. 5. The adjusted basis of the personal residence is $200,000. 6. Ryan received the vacation property as a gift from his grandfather, Grover. Grover purchased the vacation property for $10,000 and the FMV of the property at the date of transfer was $30,000. The FMV when Grover died was $60,000. The annual exclusion did not apply to the transfer and the gift tax paid was $14,700. 7. The boat is owned joint tenancy with right of survivorship with Beth. They each contributed 50% of the purchase price. The Statement of Financial Position only reflects Ryan's interest. 8. Ryan's state does not have any statutes that invalidate bequests or beneficiary designations to prior spouses. 9. This statement is prepared after all the gifts were made, including the one to Melissa, and the gift tax has been paid for the 2020 gifts. Assuming Ryan died January 1, 2023, calculate his gross estate. $3,000,000 $3,500,000 $4,862,518 $6,862,518 Assuming Ryan died January 1, 2023, calculate his probate estate. $2,140,000 $2,200,000 $2,640,000 $3,500,000 Assuming Ryan died today, calculate the marital deduction available for estate transfers to Melissa. $2,000,000 $1,000,000 $0 $2,140,000 Assume Ryan died today, and (assume for this question only) that the estate tax liability due is $266,881, and Kati is appointed executor. Unfortunately, Kati forgot to file an estate tax return (Form 706) and pay the estate tax due until 68 days after the return's due date. How much is the total penalty for failure-to-file and failure-to-pay? (Note this is not the actual estate tax liability due.) $40,032.15 $44,035.37 $36,028.60 $4,003.22 Assume Melissa and Ryan had their baby today and named him Kole. Which of the following individuals are a skip person in relation to Ryan? 1. Riley 2. Kole 3. Melissa 1,2 , and 3 1 and 3 2 and 3 1 only What is the total generation-skipping transfers for the current year reduced by any available annual exclusions or qualified transfer exclusions? $12,920,000 $13,303,000 $400,000 $13,320,000 Which of the following is true regarding Ryan's transfer to the trust benefiting the grandchildren? When the trust expires and the assets are distributed to a charitable organization, then the distribution will be a taxable termination. The transfer was a transfer to a direct skip. The trust is not subject to GSTT because of the charitable beneficiary. When distributions are made from the trust, the distributions will be taxable distributions. Ryan is thinking about transferring his investment portfolio and the bungalow to a dynasty trust for the benefit of his natural heirs. Which of the following statements is correct? Because of the blended family, generational sub-trusts may be appropriate. Ryan cannot transfer the investment portfolio without Kati and Karli's consent. Kati and Karli would be appropriate trust protectors. Ryan can name himself as the trustee and continue to make all the business decisions for the Bungalow during his life while removing the Assume for this question only, Kole was born today, and Ryan was so excited after the delivery that he had a heart attack and died. Who would receive his probate assets under the will assuming the state follows the uniform probate law? Kati, Karli, and Kole Melissa Due to the two wills, it is unclear who would inherit the assets Beth What is the amount of Ryan's total taxable gifts for the year (less the annual exclusion and qualified transfers)? $12,920,000$13,423,000$12,060,000$13,406,000 5 questions use this same scenario. Assume that Ryan and Melissa were married today. They went straight to Ryan's lawyer's office to execute new wills. On the way home from executing a valid will leaving all assets to Melissa, Ryan and Melissa were in a serious car accident. Ryan was comatose for several days before dying. His unpaid medical expenses were $150,000. The day after Ryan died; Melissa gave Ryan's children and grandchildren each $22,000 then left for France to stay with her mother. Which of the following postmortem elections would be available to Ryan's executor? A QTIP election for the assets transferred to Melissa? No answer text provided. No answer text provided. Yes, this election would be available. No, this election would not be available. 5 questions use this same scenario. Assume that Ryan and Melissa were married today. They went straight to Ryan's lawyer's office to execute new wills. On the way home from executing a valid will leaving all assets to Melissa, Ryan and Melissa were in a serious car accident. Ryan was comatose for several days before dying. His unpaid medical expenses were $150,000. The day after Ryan died; Melissa gave Ryan's children and grandchildren each $22,000 then left for France to stay with her mother. Which of the following postmortem elections would be available to Ryan's executor? A deduction on Ryan's final income tax return for the unpaid medical expenses. No, this election would not be available. Yes, this election would be available. No answer text provided. No answer text provided. 5 questions use this same scenario. Assume that Ryan and Melissa were married today. They went straight to Ryan's lawyer's office to execute new wills. On the way home from executing a valid will leaving all assets to Melissa, Ryan and Melissa were in a serious car accident. Ryan was comatose for several days before dying. His unpaid medical expenses were $150,000. The day after Ryan died; Melissa gave Ryan's children and grandchildren each $22,000 then left for France to stay with her mother. Which of the following postmortem elections would be available to Ryan's executor? A split-gift election for gifts Melissa made to the Ryan's children the day after Ryan's death. No answer text provided. No answer text provided. No, this election would not be available. Yes, this election would be available. 5 questions use this same scenario. Assume that Ryan and Melissa were married today. They went straight to Ryan's lawyer's office to execute new wills. On the way home from executing a valid will leaving all assets to Melissa, Ryan and Melissa were in a serious car accident. Ryan was comatose for several days before dying. His unpaid medical expenses were $150,000. The day after Ryan died; Melissa gave Ryan's children and grandchildren each $22,000 then left for France to stay with her mother. Which of the following postmortem elections would be available to Ryan's executor? Special use valuation for the bungalow. No answer text provided. Yes, this election would be available. No answer text provided. No, this election would not be available. 5 questions use this same scenario. Assume that Ryan and Melissa were married today. They went straight to Ryan's lawyer's office to execute new wills. On the way home from executing a valid will leaving all assets to Melissa, Ryan and Melissa were in a serious car accident. Ryan was comatose for several days before dying. His unpaid medical expenses were $150,000. The day after Ryan died; Melissa gave Ryan's children and grandchildren each $22,000 then left for France to stay with her mother. Which of the following postmortem elections would be available to Ryan's executor? Married filing jointly filing status for the current year. Yes, this election would be available. No answer text provided. No, this election would not be available. No answer text provided. Ryan is considering transferring his life insurance policy to an ILIT. Which of the following statements is true? Transferring the policy to the ILIT will eliminate the chance that the proceeds will be included in Ryan's gross estate at Ryan's death. If the trust allows the trustee to lend money to Ryan's estate at Ryan's death, then the proceeds of the life insurance policy will be included in Ryan's gross estate. If Ryan continues to pay the trustee an amount needed to pay the premiums on the policy, the proceeds will be included in his gross estate when he dies. If Ryan included a clause that said, "Ryan can change the beneficiary of the trust at any time to any person other than himself" then the assets would be included in Ryan's gross estate when he died. Carrie would like to spend the few years she has left enjoying her life. She would like to use her life insurance policy to fund the remainder of her life. Which of the following statements is correct? If Carrie surrenders her policy for accelerated death benefits, she will be subject to income tax on the gain because she is not terminally ill. If Carrie borrows from the policy, then the loan will be considered a taxable distribution. If Ryan purchases the policy from Carrie at the fair market value, he will receive the insurance proceeds income tax free at Carrie's death. Carrie could exchange the policy in an IRC Section 1035 exchange for an annuity without being subject to income tax on the transfer. If Ryan were to die today, what would his taxable estate be? $4,010,000 $3,010,000 $6,372,518 $3,835,850 If Ryan decided to sell the vacation property today for the fair market value, what would his gain or loss be? $70,000 $75,300 $80,200 $40,000 Assume for this question only that Melissa has a healthy baby boy and they name him Kole. The stress of the new baby deteriorates their relationship and Ryan and Melissa break up 6 months later. Ryan is ordered by the court to pay $2,000 a month in child support to Melissa which includes $4,000 a year for day care costs. What is Ryan's yearly taxable gift to Melissa and how much is deductible for income tax? $0 gift $0 deductible $24,000 gift $0 deductible $24,000 gift $4,000 deductible $0 gift $4,000 deductible Assume Ryan had charitable inclinations and decided he wanted to bequeath something to charity. Which of the following assets would be the most advantageous to leave to the charity considering the tax effects on other non-charitable beneficiaries? $60,000 in portfolio assets $60,000 in cash the boat $60,000 in qualified plan assets Assume for this question only that Ryan and Melissa had the baby today. When Ryan returned home, Ryan's neighbor, Stue Farm, came over. Stue is the local insurance salesman and he immediately convinced Ryan to buy a new life insurance policy on the baby's life. The policy has a $10,000 death benefit. Ryan is the owner, the policy is on Kole's life, and Melissa is the beneficiary. Assume Ryan paid his first premium payment then had a heart attack and died. Which of the following statements is correct? The interpolated terminal reserve plus any unearned premium will be included in Ryan's gross estate. The replacement cost will be included in Ryan's gross estate The policy will not be included in Ryan's gross estate because Ryan is not the beneficiary. The death benefit will be included in Ryan's gross estate. Assume Ryan and Melissa had Kole today and Ryan wanted to create a trust for Kole's future benefit. Ryan would like to create a trust that allows him to make use of the annual exclusion. He wants the trust to accumulate income until Kole reaches age 21 , at which point the entire trust will be distributed to Kole. Which of the following devices would be appropriate to accomplish Ryan's goals? An IRC section 2503(c) device An UGMA device An UTMA device An IRC section 2503(b) device Assume Ryan and Melissa had Kole today and Ryan wanted to create a trust for Kole's future benefit. Ryan would like to create a trust that allows him to make use of the annual exclusion. He wants the trust to accumulate income until Kole reaches age 21, at which point the entire trust will be distributed to Kole. Which of the following devices would be appropriate to accomplish Ryan's goals? An IRC section 2503(c) device An UGMA device An UTMA device An IRC section 2503(b) device