BORELLI CASE PERSONAL INFORMATION AND BACKGROUND Louie and Kathleen Borelli have been married for over 50 years and live on a ranch outside of Reno, Nevada They have enjoyed a comfortable retirement for 20 years, living off the wealth created through Louies company, Borelli Casinos Sadly, last month, Louie was diagnosed with a terminal illness and is only expected to live another 12 to 18 months Louie and Kathleen feel a sense of urgency around planning for the distribution of their estate to ensure that they minimize estate taxes and maximize the value of what will be left to their heirs Louie and Kathleen have two children, Jerry and Sal, who have continued their fathers legacy by working in the family business Jerry serves as the CEO of the publicly traded organization, while Sal is a floor manager at the property in Las Vegas Jerry currently lives with his girlfriend Irene in the penthouse suite at the casino in Reno He does not have any children Sal and his wife reside in Las Vegas and have a 22 year old daughter named Emily Last year, Louie confessed to Kathleen that about 20 years ago, he had an affair with another woman that resulted in the birth of a daughter named Ava Ava works as a cocktail waitress in one of the companys casinos, and Louie has been secretly sending money to help with her financial situation Name Relationship Age Occupation Health Comments LouieHusband78RetiredTerminally Ill KathleenWife75RetiredExcellent JerrySon50CEO, Borellis CasinosExcellent SalSon47Casino Floor ManagerExcellentMarried, one childEmilyGranddaughter (Sal's Child)22Just graduated from collegeExcellentGetting married this summerAvaNon marital child (Louie's child with another woman)20Cocktail waitressExcellentRelies on Louie for support GOALS AND OBJECTIVES 1 Louie and Kathleen want to ensure the efficient transfer of their estate to their heirs 2 Louie wants to make sure that Ava is not disinherited at his death 3 Louie and Kathleen would like to give $20,000 in cash to Emily to help fund her wedding 4 Louie and Kathleen would like to give their shares in XYZ Company to their neighbor whose child was recently killed in a car accident 5 Louie and Kathleen would like to continue to support the nonprofit research organization that is looking for a cure for Louies disease, while maximizing their income tax deduction They have set aside $175,000 in a savings account for this purpose INCOME TAX INFORMATION Louie and Kathleen had an adjusted gross income of $185,000 last year and anticipate it will be the same this year They made a $100,000 cash charitable contribution this year to the nonprofit research organization trying to find a cure to Louies disease They are in the 28 marginal federal tax bracket for the current year ESTATE PLANNING INFORMATION Louie and Kathleen live in a community property state Louie and Kathleens current wills leave all their assets to each other at their deaths Jerry is the named executor in both wills After Louie was diagnosed as terminally ill, he and Kathleen met with their attorney to discuss drafting new estate planning documents The attorney has proposed that Louie execute a will in which his entire estate will pass to a testamentary marital trust with a QTIP election The income from the trust would be paid annually to Kathleen, but she would be restricted to withdrawing principal only for her health, maintenance, and support At Kathleens death, the assets would pass equally to Jerry, Sal, and Ava, per stirpes The terms of the trust do not give Kathleen the right to change the beneficiaries, but she can direct a different allocation of assets among the beneficiaries at her death The attorney has also recommended that while Louie is still in good mental condition, he and Kathleen both execute advance medical directives and powers of attorney for property and health care Louie would like to have sole responsibility to take care of his finances and medical decisions until he is incapacitated Louie wanted to make things as easy as possible at his death for Kathleen and Jerry so he prepaid his funeral expenses TRUST INFORMATION Four years ago, Louie and Kathleen established a trust (called the children and grandchildrens trust) for the benefit of Jerry, Sal, and Emily The trust must distribute income to Jerry and Sal during their lifetimes, with the remainder to transfer outright to Emily at their deaths Louie and Kathleen transferred $4 million worth of their shares in Borelli Casinos to the trust The gift to the trust was considered a split gift for gift tax purposes, and they each elected to allocate their applicable exclusion amount for generation skipping transfer tax purposes Louie and Kathleen have no current or future rights with regard to the trust Louie and Kathleen elected a representative at the local bank to serve as a corporate trustee over the children and grandchildrens trust The trustee sold the stock in Borelli Casinos and allocated the proceeds to a portfolio of large cap growth stocks that do not pay dividends The selected stocks are well diversified across all major sectors and industries, representing both U S and foreign companies A reasonable administrative fee for the trustees services is paid directly from the trust Each month the trustee sends a statement of the trust holdings to Jerry, Sal, and Emily To create parity between Ava and his other two children, Louie would like to transfer $2 million in shares of Borelli Casinos to a grantor trust for Avas benefit The trust would pay income to Louie and Kathleen for five years, and then the assets would pass outright to Ava INVESTMENT ACCOUNT INFORMATION Louie and Kathleen have one large brokerage account in which they accumulated assets during Louies career in the casino business While Louie was working, he deferred $500,000 of his salary into his 401(k) plan After his retirement, he rolled the assets into an IRA account that has since grown to be worth $1,100,000 Louie and Kathleen allocate the portfolios in both accounts 50 to equities and 50 to bonds INSURANCE INFORMATION Insured Owner Beneficiary Face Amount Type Cash Value Annual Premium Notes LouieLouieKathleen$2,000,000Whole life$750,000$20,000Purchased 25 years ago ANNUITY INFORMATION Louie inherited a condo in downtown Las Vegas 10 years ago, worth $1,500,000, which he subsequently sold to Sal, in exchange for a single life $55,000 annual annuity payment made at the beginning of each year Sal has made 10 payments to date Louie and Kathleen BorelliProjected Cash Flow for the Current Year Cash Inflows Portfolio income$100,000Social Security income$ 32,000Private annuity income$ 55,000 Cash Outflows Taxes (income and real estate)$ 25,000Lifestyle expenses$120,000Insurance premiums$ 20,000 Louie and Kathleen save any remaining income into their brokerage account Louie and Kathleen BorelliStatement of Financial Position as of December 31st Last Year ASSETS Cash and Cash Equivalents Checking account$ 75,000Savings account$ 175,000TOTAL Cash and Cash Equivalents$ 250,000 Invested Assets Borelli Casinos company stock 1 $ 20,000,000XYZ Company stock 2 $ 25,000Louie's IRA 3 $ 1,100,000Brokerage account$ 2,300,000Annuity 5 $ 800,000TOTAL Invested Assets$24,225,000 Personal Use Assets Nevada ranch 6 $ 1,400,000Cars$ 75,000Furniture and household items$ 250,000TOTAL Personal Use Assets$ 1,725,000 Total Assets $26,200,000 LIABILITIES AND NET WORTH Liabilities (none)$ 0TOTAL Liabilities$ 0 Net Worth $26,200,000 All assets are considered community property unless otherwise noted 1 The basis in the stock is $1,230,000 This amount represents 20 of all outstanding shares 2 XYZ is a publicly traded company The basis in the stock is $56,000 3 Kathleen is the named primary beneficiary Jerry and Sal are the named contingent beneficiaries 4 The basis in the brokerage account is $1,900,000 5 See the Annuity Information section for details 6 The land is worth $300,000 The basis in the property is $440,000 The mortgage is paid off Question Assume that Louie will undergo a procedure which requires him to be sedated He anticipates meeting with his banker the next day to sign some account documents and he's not sure how he will be feeling Kathleen will attend the meeting as well but they want to ensure that they have a power of attorney in place in the instance that he cannot sign the documents What type of power of attorney would be most suitable for Louie A Non springing, durable B Springing, durable C Springing, nondurable D Non springing, nondurable

Question

BORELLI CASE PERSONAL INFORMATION AND BACKGROUND Louie and Kathleen Borelli have been married for over 50 years and live on a ranch outside of Reno, Nevada  They have enjoyed a comfortable retirement for 20 years, living off the wealth created through Louies company, Borelli Casinos  Sadly, last month, Louie was diagnosed with a terminal illness and is only expected to live another 12 to 18 months  Louie and Kathleen feel a sense of urgency around planning for the distribution of their estate to ensure that they minimize estate taxes and maximize the value of what will be left to their heirs  Louie and Kathleen have two children, Jerry and Sal, who have continued their fathers legacy by working in the family business  Jerry serves as the CEO of the publicly traded organization, while Sal is a floor manager at the property in Las Vegas  Jerry currently lives with his girlfriend Irene in the penthouse suite at the casino in Reno  He does not have any children  Sal and his wife reside in Las Vegas and have a 22 year old daughter named Emily  Last year, Louie confessed to Kathleen that about 20 years ago, he had an affair with another woman that resulted in the birth of a daughter named Ava  Ava works as a cocktail waitress in one of the companys casinos, and Louie has been secretly sending money to help with her financial situation  Name Relationship Age Occupation Health Comments LouieHusband78RetiredTerminally Ill KathleenWife75RetiredExcellent JerrySon50CEO, Borellis CasinosExcellent SalSon47Casino Floor ManagerExcellentMarried, one childEmilyGranddaughter (Sal's Child)22Just graduated from collegeExcellentGetting married this summerAvaNon marital child (Louie's child with another woman)20Cocktail waitressExcellentRelies on Louie for support GOALS AND OBJECTIVES 1  Louie and Kathleen want to ensure the efficient transfer of their estate to their heirs  2  Louie wants to make sure that Ava is not disinherited at his death  3  Louie and Kathleen would like to give $20,000 in cash to Emily to help fund her wedding  4  Louie and Kathleen would like to give their shares in XYZ Company to their neighbor whose child was recently killed in a car accident  5  Louie and Kathleen would like to continue to support the nonprofit research organization that is looking for a cure for Louies disease, while maximizing their income tax deduction  They have set aside $175,000 in a savings account for this purpose  INCOME TAX INFORMATION Louie and Kathleen had an adjusted gross income of $185,000 last year and anticipate it will be the same this year  They made a $100,000 cash charitable contribution this year to the nonprofit research organization trying to find a cure to Louies disease  They are in the 28  marginal federal tax bracket for the current year  ESTATE PLANNING INFORMATION Louie and Kathleen live in a community property state  Louie and Kathleens current wills leave all their assets to each other at their deaths  Jerry is the named executor in both wills  After Louie was diagnosed as terminally ill, he and Kathleen met with their attorney to discuss drafting new estate planning documents  The attorney has proposed that Louie execute a will in which his entire estate will pass to a testamentary marital trust with a QTIP election  The income from the trust would be paid annually to Kathleen, but she would be restricted to withdrawing principal only for her health, maintenance, and support  At Kathleens death, the assets would pass equally to Jerry, Sal, and Ava, per stirpes  The terms of the trust do not give Kathleen the right to change the beneficiaries, but she can direct a different allocation of assets among the beneficiaries at her death  The attorney has also recommended that while Louie is still in good mental condition, he and Kathleen both execute advance medical directives and powers of attorney for property and health care  Louie would like to have sole responsibility to take care of his finances and medical decisions until he is incapacitated  Louie wanted to make things as easy as possible at his death for Kathleen and Jerry so he prepaid his funeral expenses  TRUST INFORMATION Four years ago, Louie and Kathleen established a trust (called the children and grandchildrens trust) for the benefit of Jerry, Sal, and Emily  The trust must distribute income to Jerry and Sal during their lifetimes, with the remainder to transfer outright to Emily at their deaths  Louie and Kathleen transferred $4 million worth of their shares in Borelli Casinos to the trust  The gift to the trust was considered a split gift for gift tax purposes, and they each elected to allocate their applicable exclusion amount for generation skipping transfer tax purposes  Louie and Kathleen have no current or future rights with regard to the trust  Louie and Kathleen elected a representative at the local bank to serve as a corporate trustee over the children and grandchildrens trust  The trustee sold the stock in Borelli Casinos and allocated the proceeds to a portfolio of large cap growth stocks that do not pay dividends  The selected stocks are well diversified across all major sectors and industries, representing both U S  and foreign companies  A reasonable administrative fee for the trustees services is paid directly from the trust  Each month the trustee sends a statement of the trust holdings to Jerry, Sal, and Emily  To create parity between Ava and his other two children, Louie would like to transfer $2 million in shares of Borelli Casinos to a grantor trust for Avas benefit  The trust would pay income to Louie and Kathleen for five years, and then the assets would pass outright to Ava  INVESTMENT ACCOUNT INFORMATION Louie and Kathleen have one large brokerage account in which they accumulated assets during Louies career in the casino business  While Louie was working, he deferred $500,000 of his salary into his 401(k) plan  After his retirement, he rolled the assets into an IRA account that has since grown to be worth $1,100,000  Louie and Kathleen allocate the portfolios in both accounts 50  to equities and 50  to bonds  INSURANCE INFORMATION Insured Owner Beneficiary Face Amount Type Cash Value Annual Premium Notes LouieLouieKathleen$2,000,000Whole life$750,000$20,000Purchased 25 years ago ANNUITY INFORMATION Louie inherited a condo in downtown Las Vegas 10 years ago, worth $1,500,000, which he subsequently sold to Sal, in exchange for a single life $55,000 annual annuity payment made at the beginning of each year  Sal has made 10 payments to date  Louie and Kathleen BorelliProjected Cash Flow for the Current Year Cash Inflows Portfolio income$100,000Social Security income$ 32,000Private annuity income$ 55,000 Cash Outflows Taxes (income and real estate)$ 25,000Lifestyle expenses$120,000Insurance premiums$ 20,000 Louie and Kathleen save any remaining income into their brokerage account  Louie and Kathleen BorelliStatement of Financial Position as of December 31st Last Year ASSETS Cash and Cash Equivalents Checking account$ 75,000Savings account$ 175,000TOTAL Cash and Cash Equivalents$ 250,000 Invested Assets Borelli Casinos company stock 1 $ 20,000,000XYZ Company stock 2 $ 25,000Louie's IRA 3 $ 1,100,000Brokerage account$ 2,300,000Annuity 5 $ 800,000TOTAL Invested Assets$24,225,000 Personal Use Assets Nevada ranch 6 $ 1,400,000Cars$ 75,000Furniture and household items$ 250,000TOTAL Personal Use Assets$ 1,725,000 Total Assets $26,200,000 LIABILITIES AND NET WORTH Liabilities (none)$ 0TOTAL Liabilities$ 0 Net Worth $26,200,000 All assets are considered community property unless otherwise noted  1 The basis in the stock is $1,230,000  This amount represents 20  of all outstanding shares  2 XYZ is a publicly traded company  The basis in the stock is $56,000  3 Kathleen is the named primary beneficiary  Jerry and Sal are the named contingent beneficiaries  4 The basis in the brokerage account is $1,900,000  5 See the Annuity Information section for details  6 The land is worth $300,000  The basis in the property is $440,000  The mortgage is paid off  Question Assume that Louie will undergo a procedure which requires him to be sedated  He anticipates meeting with his banker the next day to sign some account documents and he's not sure how he will be feeling  Kathleen will attend the meeting as well but they want to ensure that they have a power of attorney in place in the instance that he cannot sign the documents  What type of power of attorney would be most suitable for Louie  A  Non springing, durable B  Springing, durable C  Springing, nondurable D  Non springing, nondurable

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BORELLI CASE PERSONAL INFORMATION AND BACKGROUND Louie and Kathleen Borelli have been married for over 50 years and live on a ranch outside of Reno,

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