19. Assume for this question only that Emily has a healthy baby boy and they name him Sylvester. The stress of the new baby deteriorates their relationship and Pete and Emily break up 6 months later. Pete is ordered by the court to pay $44,000 a month in child support to Emily which includes $85,000 a year for day care costs. What is Pete's yearly taxable gift to Emily and how much is deductible for income tax? (Value - 10 poinfs) 20. Assume Pete had charitable inclinations and decided he wanted to bequeath something to charity. Which of his assets would be the most advantageous to leave to the charity considering the tax effects on other non-charitable beneficiaries? (Value - 10 points) 21. Assume Pete and Emily had Sylvester today and Pete wanted to create a trust for Sylvester's future benefit. Pete would like to create a trust that allows him to make use of the annual exclusion. He wants the trust to accumulate income until Sylvester reaches age 21, at which point the entire trust will be distributed to Sylvester. Which of trust would be appropriate to accomplish Pete's goals? (Value - 10 points) 22. Pete is considering changing his will today. He wants the new will to leave everything to Emily. Name and explain at least four clauses that should Pete consider including in his will. (Value 16 points) 23. Pete is aware that estate taxes may be due upon his death. What strategies could be implemented to deal with the payment of those taxes? (Hint - at least 3 strategies must be addressed for full credit.) (Value - 10 points) PETE'S STATEMENT OF FINANCIAL POSITION AS OF 12/31/20 (AFTER THE GIFT TO EMILY) 1. Assets are stated at fair market value (rounded to even dollars). 2. Liabilities are stated at principal only (rounded to even dollars). 3. Pebble Bar was valued last week for insurance purposes. The valuation includes $10,000,000 for the land and $13,785,000 for the business. 4. The qualified plan has Diana listed as the designated beneficiary. The Investment Portfolio is a Transfer on Death (TOD) account with Kate and Pippa as the listed beneficiaries. 5. The adjusted basis of the personal residence is $4,000,000. 6. Pete received the vacation property as an inter vivos gift from his grandfather, Otto. Otto purchased the vacation property for $1,000 and the FMV of the property at the date of transfer to Pete was $75,000. The FMV when Utto died was $90,000. The annual exclusion did not apply to the transfer and the gift tax paid was $18,400. 7. The yacht is owned joint tenancy with rights of survivorship with Diana. They each contributed 50% of the purchase price. The Statement of Financial Position only reflects Pete's interest. 8. Pete'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 Emily, and the gift tax has been paid for the 2015 gifts. GIFTS TO CHILDREN in 2017 Pete made the following gifts to his children during 2017: - Pete gave $350,000 of separate property to Kate. - Pete paid $308,000 to Stanford for Pippa's undergraduate tuition. - Pete gave Pippa a Range Rover valued at $104,500 to celebrate her success at Stanford. - Pete also gave each grandchild $10,000 each. GIFTS TO GRANDCHILDREN in 2018 Pete made the following gifts to his grandchildren during 2018: - Seeing how Pete's mom outlived her assets, Pete is afraid his grandchildren may have the same fate. To assist them with their retirement income, Pete decided to establish a trust for the grandchildren. The trust is an irrevocable trust and he funded it in the current year with $950,000. 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. - Pete sent a check in the amount of $18,000 directly to Louis's private school to pay her tuition. - Pete also gave each grandchild $10,000 each. Assume Pete paid gift tax of $3,828,000 in 2016 for taxable gifts in the amount of $15,000,000 made in 2015. These were his first taxable gifts