1- What are the steps Benny and Martha should take immediately and over the long-run to reduce their gross estate and achieve their goals. Be specific and quantify the impact of each recommendations.
2- Prepare the gift tax returns for 2009 and 2012, as well as for the current year, based on recommendations. The applicable credit amount for gift tax purposes was $345,800 in 2009. $1,772,800 in 2012. And $4,417,800 in 2018. The annual exclusion was $13,000 in 2009 and 2012 and is $15,000 in 2018.
3- Prepare an estate tax return for Benny as of the end of the current year after any recommended transfers. Assume he dies on December 31 of the current year. Assuming the combined last medical and funeral costs are $100,000 and the estate administration cost is $150,000. Due Sunday!!
Martha's Vineyard. They had ecided to purchase a home on their children and grandchildren Vacation Home Benny and Martha used to spend summers with friends at a home on March such fond memories that once they became successful, they decided Martha's Vineyard. They spend a substantial amount of time with their chil at the vacation home every summer. nd Martha. The policy has $200,000. The policy Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha Ti a death benefit of $2 million. Assume the replacement value of the policy is $200.000 is currently owned by Benny and the three boys are the beneficiaries. Investment Real Estate The investment real estate includes several pieces of commercial real estate held in separate en The value is expected to increase at an average rate of 10 percent per year. Estate Planning Documents Benny and Martha have basic wills that make optimal use of testamentary bypass trusts and the marital deduction. The wills were designed to avoid all estate tax at the death of the first spouse and to make use of their lifetime exemptions. They also have durable powers of attorney for health care, advanced medical directives and financial powers of attorney. Prior Gifts In 2000, Benny established a Charitable Remainder Annuity Trust and funded it with highly appreciated publicly-traded stock worth $1,000,000. Benny and Martha were the income beneficiaries and the Wounded Warrior Project was the remainder beneficiary. The trust was set up with a ten-year term. In 2009, Benny established an irrevocable trust for each of the three boys and funded cach trust with $1 million. The trusts were set up in such a way as to allow the trustee of each trust to provide for the health, education, maintenance and support of the beneficiary. The trusts were esta as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns The trusts were not set up as crummy trusts. The trusts name the children (born and uncom cach of the boys as the contingent beneficiaries for cach trust. In 2012, Benny gave Uncle George a gift of $1,013,000 in cash. His uncle had been inspire when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. cler 1 GOALS: PREPAR IS: PREPARE A PROPER ESTATE PLAN 1. Minimize estate taxes. Fund college education for the five grandchildren. & Set up a special needs trust for Ivan's future needs re that the vacation home is a permanent family home for children and grandchil- dren. 5 Keep 100 percent of business interests in the family. Maintain control of the business until retirement at which time James and Joe will take over. 7. Transfer an additional $2 million to the Wounded Warrior Project some time in the future. 4. Ensure that the vacation FINANCIAL STATEMENTS Balance Sheet ASSETS Cash/Cash Equivalents JT Checking and Savings Total Cash/Cash Equiv. $1.000.000 $1,000,000 LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities S100.000 $100,000 Invested Assets JT Marketable Securities JT Business Interests H 401(k) Plan JT Investment Real Estate Total Investments $6,000,000 6.000.000 1.250.000 3,000,000 $16.250.000 Long-Term Liabilities JT Mortgage - Primary Total Long-Tere Libilities $1.000.000 $1.000.000 $1,100,000 Tocal Liabilities Personal Use Assets JT Primary Residence JT Vacation Home $20.450.000 $2.000.000 1.500.000 100.000 500.000 200.000 $4,300,000 Net Worth JT Autos $21.550.000 JT Household Furnishings H Life Insurance Total Personal Us Total Liabilities and Net Worth $21.550,000 Total Assets Statement of Income and Expenses Totals Statement of Income and Expenses Mr. and Mrs. Franklin Statement of Income and Expenses for Past Year CASH INFLOWS Salaries $900,000 $400,000 $1,300,000 Income Investment Income Total Cash Inflows CASH OUTFLOWS Lifestyle Needs (includes debt repayment) Income Taxes Property Taxes Homeowner's Insurance Health Insurance Long-term Care Insurance Disability Insurance Life Insurance Total Fixed Outflows Excess Cash Flow $500,000 $400,000 $100,000 $25.000 $25.000 $25.000 $25.000 $100,000 $1.200.000 $100,000 CASE ASSUMPTIONS 1. They want to make maximum use of their annual exclusions. 2. They want to maintain total control over their business interests until retiremene 3. They are willing to fully utilize their gift and estate applicable credits any time to a plish the best plan. 4. The long-term AFR is 3%. 5. Any minority transfer of business interests will receive a 25% discount 6. Their life expectancies for GRAT or QPRT purposes are as follows: Him Her 95% 5 years 5 years 75% 20 years 25 years 50% 30 years 35 years 25% 35 years 40 years 7. Their principal residence and the vacation home are appreciating at 10% per year and are expected to continue to grow at that rate. DIRECTIONS FOR THE CASE 1. What are the steps Benny and Martha should take immediately and over the long-term reduce their gross estate and achieve their goals. Be specific and quantity the impa each recommendation. 2. Prepare the gift tax returns for 2009 and 2012, as well as for the current year ommendations. The applicable credit amount for gift tax purposes was $43. $1,772,800 in 2012 and $4.417.800 in 2018 The annual exclusion was and 2012, and is $15,000 in 2018. an estate tax return for Benny as of the end of the current year after mended transfers. Assume he dies on December 31 of the current year. bined last medical and funeral costs are $100.000 and the estate admin $150,000 drer incle 2, as well as for the current year, based on and 2012, and 2012, and 4,sredit amount for poses was $345.800 in 2009, Sion was $13,000 in 2009 year after any recom rent year. Assume the com e administration cost 556 GUPTER 14: BASIC ESTATE PUAN Chapter 2 EXHIBIT 14.5 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) SO but not over $10,000 Over $10,000 but not over $20,000 18% of such amount Over $20,000 but not over $40.000 $1,800 plus 20% of the excess of such amount over $10,000 Over $40,000 but not over $60,000 $3,800 plus 22% of the excess of such amount over $20,000 $8,200 plus 24% of the excess of such amount over $40,000 Over $60,000 but not over $80,000 $13.000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18.200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23.800 plus 30% of the scess of such amount over $100,000 Over $150,000 but not over $250,000 $38.800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500.000 $70,800 plus 34% of the excess of such amount over $250.000 Over $500,000 but not over $750,000 $155.800 plus 37% of the ccess of such amount over $500.000 Over $750,000 but not over $1.000.000 $248,300 plus 39% of the cucess of such amount over $750,000 Over $1,000,000 but not over $1.250,000 $345 800 plus 41% of the excess of such amount over $1,000,000 Over $1,250,000 but not over $1.500,000 $448.300 plus 43% of the excess of sach amount over $1,250,000 Over $1.500,000 but not over $2,000,000 $555.800 plus 45% of the excess of such amount over $1,500,000 $780.800 plus 45% of the excess of such amount over $2.000.000 Over $2,000,000 EXHIBIT TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2012) Over $0 but not over $10,000 1896 of such amount Over $10,000 but not over $20,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $20,000 but not over $40,000 $3,800 plus 22% of the excess of such amount over $20,000 Over $40,000 but not over $60,000 $8,200 plus 24% of the excess of such amount over $40,000 Over $60,000 but not over $80,000 $13,000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18.200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23.800 plus 30% of the excess of such amount over $100.000 Over $150,000 but not over $250,000 $38.800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70,800 plus 34% of the excess of such amount over $250,000 Over 5500.000 $155,800 plus 35% of the excess of such amount over $500.000 EXHIBIT and of each frusts eneficia (born Ohers but so OVER $10.000 Der $10,000 but not over $20,000 Oh $20.000 but not over $40,000 DS40.000 bu ver $60,000 Sher O but over $80,000 ther . but not over $100.000 her $100.000 $150,000 $150.000 but o ver $250.000 the $250.000 $500,000 100.000 $750,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) 18% of such amount. $1,800 plus 20% of the excess of wach amount over $10.000 $3,800 plus 22% of the excess of sach amount over $20,000 $8.200 plus 24% of the excess of such amount over $10,000 $13.000 plus 26% of the crew of such amount over $60,000 $18.200 plus 28% of the cance of such amount over $80,000 $23.800 plus 30% of the cow of ach amount over 100.000 $38.800 plus 32% of the ice of such m at over $150,000 $70,800 plus 34% of the a ss of wuch m o wer $250,000 5155.800 plus 37 of the ece of such amount over $500.000 of over $1,000,000 $2482300 plus 39 the ce of wha t ever 3345 800 plus 40% of the c ofwuch amount over $1.000.000 had bee Martha's Vineyard. They had ecided to purchase a home on their children and grandchildren Vacation Home Benny and Martha used to spend summers with friends at a home on March such fond memories that once they became successful, they decided Martha's Vineyard. They spend a substantial amount of time with their chil at the vacation home every summer. nd Martha. The policy has $200,000. The policy Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha Ti a death benefit of $2 million. Assume the replacement value of the policy is $200.000 is currently owned by Benny and the three boys are the beneficiaries. Investment Real Estate The investment real estate includes several pieces of commercial real estate held in separate en The value is expected to increase at an average rate of 10 percent per year. Estate Planning Documents Benny and Martha have basic wills that make optimal use of testamentary bypass trusts and the marital deduction. The wills were designed to avoid all estate tax at the death of the first spouse and to make use of their lifetime exemptions. They also have durable powers of attorney for health care, advanced medical directives and financial powers of attorney. Prior Gifts In 2000, Benny established a Charitable Remainder Annuity Trust and funded it with highly appreciated publicly-traded stock worth $1,000,000. Benny and Martha were the income beneficiaries and the Wounded Warrior Project was the remainder beneficiary. The trust was set up with a ten-year term. In 2009, Benny established an irrevocable trust for each of the three boys and funded cach trust with $1 million. The trusts were set up in such a way as to allow the trustee of each trust to provide for the health, education, maintenance and support of the beneficiary. The trusts were esta as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns The trusts were not set up as crummy trusts. The trusts name the children (born and uncom cach of the boys as the contingent beneficiaries for cach trust. In 2012, Benny gave Uncle George a gift of $1,013,000 in cash. His uncle had been inspire when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. cler 1 GOALS: PREPAR IS: PREPARE A PROPER ESTATE PLAN 1. Minimize estate taxes. Fund college education for the five grandchildren. & Set up a special needs trust for Ivan's future needs re that the vacation home is a permanent family home for children and grandchil- dren. 5 Keep 100 percent of business interests in the family. Maintain control of the business until retirement at which time James and Joe will take over. 7. Transfer an additional $2 million to the Wounded Warrior Project some time in the future. 4. Ensure that the vacation FINANCIAL STATEMENTS Balance Sheet ASSETS Cash/Cash Equivalents JT Checking and Savings Total Cash/Cash Equiv. $1.000.000 $1,000,000 LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities S100.000 $100,000 Invested Assets JT Marketable Securities JT Business Interests H 401(k) Plan JT Investment Real Estate Total Investments $6,000,000 6.000.000 1.250.000 3,000,000 $16.250.000 Long-Term Liabilities JT Mortgage - Primary Total Long-Tere Libilities $1.000.000 $1.000.000 $1,100,000 Tocal Liabilities Personal Use Assets JT Primary Residence JT Vacation Home $20.450.000 $2.000.000 1.500.000 100.000 500.000 200.000 $4,300,000 Net Worth JT Autos $21.550.000 JT Household Furnishings H Life Insurance Total Personal Us Total Liabilities and Net Worth $21.550,000 Total Assets Statement of Income and Expenses Totals Statement of Income and Expenses Mr. and Mrs. Franklin Statement of Income and Expenses for Past Year CASH INFLOWS Salaries $900,000 $400,000 $1,300,000 Income Investment Income Total Cash Inflows CASH OUTFLOWS Lifestyle Needs (includes debt repayment) Income Taxes Property Taxes Homeowner's Insurance Health Insurance Long-term Care Insurance Disability Insurance Life Insurance Total Fixed Outflows Excess Cash Flow $500,000 $400,000 $100,000 $25.000 $25.000 $25.000 $25.000 $100,000 $1.200.000 $100,000 CASE ASSUMPTIONS 1. They want to make maximum use of their annual exclusions. 2. They want to maintain total control over their business interests until retiremene 3. They are willing to fully utilize their gift and estate applicable credits any time to a plish the best plan. 4. The long-term AFR is 3%. 5. Any minority transfer of business interests will receive a 25% discount 6. Their life expectancies for GRAT or QPRT purposes are as follows: Him Her 95% 5 years 5 years 75% 20 years 25 years 50% 30 years 35 years 25% 35 years 40 years 7. Their principal residence and the vacation home are appreciating at 10% per year and are expected to continue to grow at that rate. DIRECTIONS FOR THE CASE 1. What are the steps Benny and Martha should take immediately and over the long-term reduce their gross estate and achieve their goals. Be specific and quantity the impa each recommendation. 2. Prepare the gift tax returns for 2009 and 2012, as well as for the current year ommendations. The applicable credit amount for gift tax purposes was $43. $1,772,800 in 2012 and $4.417.800 in 2018 The annual exclusion was and 2012, and is $15,000 in 2018. an estate tax return for Benny as of the end of the current year after mended transfers. Assume he dies on December 31 of the current year. bined last medical and funeral costs are $100.000 and the estate admin $150,000 drer incle 2, as well as for the current year, based on and 2012, and 2012, and 4,sredit amount for poses was $345.800 in 2009, Sion was $13,000 in 2009 year after any recom rent year. Assume the com e administration cost 556 GUPTER 14: BASIC ESTATE PUAN Chapter 2 EXHIBIT 14.5 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) SO but not over $10,000 Over $10,000 but not over $20,000 18% of such amount Over $20,000 but not over $40.000 $1,800 plus 20% of the excess of such amount over $10,000 Over $40,000 but not over $60,000 $3,800 plus 22% of the excess of such amount over $20,000 $8,200 plus 24% of the excess of such amount over $40,000 Over $60,000 but not over $80,000 $13.000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18.200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23.800 plus 30% of the scess of such amount over $100,000 Over $150,000 but not over $250,000 $38.800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500.000 $70,800 plus 34% of the excess of such amount over $250.000 Over $500,000 but not over $750,000 $155.800 plus 37% of the ccess of such amount over $500.000 Over $750,000 but not over $1.000.000 $248,300 plus 39% of the cucess of such amount over $750,000 Over $1,000,000 but not over $1.250,000 $345 800 plus 41% of the excess of such amount over $1,000,000 Over $1,250,000 but not over $1.500,000 $448.300 plus 43% of the excess of sach amount over $1,250,000 Over $1.500,000 but not over $2,000,000 $555.800 plus 45% of the excess of such amount over $1,500,000 $780.800 plus 45% of the excess of such amount over $2.000.000 Over $2,000,000 EXHIBIT TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2012) Over $0 but not over $10,000 1896 of such amount Over $10,000 but not over $20,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $20,000 but not over $40,000 $3,800 plus 22% of the excess of such amount over $20,000 Over $40,000 but not over $60,000 $8,200 plus 24% of the excess of such amount over $40,000 Over $60,000 but not over $80,000 $13,000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18.200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23.800 plus 30% of the excess of such amount over $100.000 Over $150,000 but not over $250,000 $38.800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70,800 plus 34% of the excess of such amount over $250,000 Over 5500.000 $155,800 plus 35% of the excess of such amount over $500.000 EXHIBIT and of each frusts eneficia (born Ohers but so OVER $10.000 Der $10,000 but not over $20,000 Oh $20.000 but not over $40,000 DS40.000 bu ver $60,000 Sher O but over $80,000 ther . but not over $100.000 her $100.000 $150,000 $150.000 but o ver $250.000 the $250.000 $500,000 100.000 $750,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) 18% of such amount. $1,800 plus 20% of the excess of wach amount over $10.000 $3,800 plus 22% of the excess of sach amount over $20,000 $8.200 plus 24% of the excess of such amount over $10,000 $13.000 plus 26% of the crew of such amount over $60,000 $18.200 plus 28% of the cance of such amount over $80,000 $23.800 plus 30% of the cow of ach amount over 100.000 $38.800 plus 32% of the ice of such m at over $150,000 $70,800 plus 34% of the a ss of wuch m o wer $250,000 5155.800 plus 37 of the ece of such amount over $500.000 of over $1,000,000 $2482300 plus 39 the ce of wha t ever 3345 800 plus 40% of the c ofwuch amount over $1.000.000 had bee
