1) Assuming Kenny died today, calculate his gross estate.

A) $5,000,000

B) $5,500,000

C) $2,140,000

D) $6,731,840

2) Assuming Kenny died today, calculate his probate estate.

A) $2,140,000

B) $2,260,000

C) $4,940,000

D) $6,731,840

3) Assuming Kenny died today, calculate the Marital Deduction available for estate transfers to Melissa.

A) $0 Solution is Zero since it is a martial transfer for the estate

B) $1,000,000

C) $2,000,000

D) $2,140,000

4) Regarding gifts made by Kenny, what is the total annual exclusion available for the Generation Skipping Transfers made in the current year?

A) $14,000

B) $18,000

C) $26,000

D) $31,000

Kenny and Melissa Background

Kenny, age 62, and Melissa, age 23, have been dating for about a year and a half. Kenny and Melissa met when Kenny was on a vacation in the south of France. Melissa was a beautiful French artist selling paintings at the market by Kennys hotel. After a month-long romance, Kenny asked Melissa to return to the United States with him. Although 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 Kenny and Melissa are confident the child is Kennys. When they found out Melissa was pregnant, Melissa moved into the 4 bedroom home Kenny 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, Kenny gave Melissa $2,000,000 in cash last month. This is the only asset Melissa owns. Kenny also purchased a $1,000,000 life insurance policy on his life and designated Melissa as the beneficiary.

Kenny was married before and has two children from that marriage, Kati, age 38, and Karli, age 28. Both girls are happily married and have children of their own. Kati has two children, Cody, age 3, and Kali, age 13. Karli was unable to have children of her own; therefore, she adopted a little girl, Riley, age 2, from Russia last year.

Kenny and his first wife, Liz, have been divorced for ten years and are not on speaking terms. After their marriage, Kenny was required to pay Liz alimony in the amount of $1,000 per month for 5 years. When the court order expired, Kenny felt bad so he continues to give Liz $1,000 per month on the first of each month.

Although Kenny has high blood pressure, he is otherwise healthy. Melissa has never been married. She is in excellent health, and learned just a few days ago that they are having a boy and he is expected to be healthy. Kenny is retired and owns The Bungalow, a local bar and grill. Melissa is currently unemployed. Kenny and Melissa live in a community property state.

Kennys mother, Carrie, also lives with him. Carrie is 82 and in failing health. The only substantial asset she still owns is a life insurance policy covering her life. The policy has a $100,000 death benefit. The policy does not have a named beneficiary.

For estate planning purposes, Kenny estimates the following expenses at his death:

The last illness and funeral expenses are expected to be $100,000.

Estate administration expenses are estimated at $180,000.

Current Year Gifts to Grandchildren

Kenny made the following gifts to his grandchildren during the current year:

Seeing how Kennys mom out lived her assets, Kenny is afraid his grandchildren may have the same fate. To assist them with their retirement income, Kenny decided to establish a trust for the grandchildren. 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 is any remaining assets then the trustee may distribute those assets to a charitable organization of his choosing.

Kenny sent a check in the amount of $6,000 to Kalis private school to pay her tuition.

Kenny also gave both Cody and Riley $6,000 each.

Due to prior transfers, Kenny paid GSTT of $165,600 and gift tax of $231,840.

Kennys Statement of Financial Position

ASSETS				LIABILITIES & NET WORTH
Cash/Cash Equivalents				Liabilities
	Cash	$120,000			Primary Residence	$200,000
Total Cash/Cash Equiv.		$120,000			Auto	$10,000
				Total Liabilities		$210,000
Invested Assets
	The Bungalow	$1,500,000		Net Worth		$5,290,000
	Investment Portfolio	$2,800,000
	Qualified Plan	$500,000
Total Investments		$4,800,000
Personal Use Assets
	Primary Residence	$400,000
	Vacation Property	$100,000
	Auto	$20,000
	Boat	$60,000
Total Personal Use		$580,000
Total Assets		$5,500,000		Total Liabilities & Net Worth		$5,500,000

Notes to Financial Statements:

Assets are stated at fair market value (rounded to even dollars).

Liabilities are stated at principal only (rounded to even dollars).

The Bungalow was valued last week for insurance purposes. The valuation includes $100,000 for the land and $1,400,000 for the business.

The qualified plan has Liz listed as the designated beneficiary. The Investment Portfolio is a Transfer on Death (TOD) account with Kati and Karli as the listed beneficiaries.

The adjusted basis of the personal residence is $200,000.

Kenny 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.

The boat is owned joint tenancy with rights of survivorship with Liz. They each contributed 50% of the purchase price. The Statement of Financial Position only reflects Kennys interest.

Kennys state does not have any statutes that invalidate bequests or beneficiary designations to prior spouses.