Case Assumptions: They want to make maximum use of their annual exclusions 3. They are willing to fully utilize their gift and estate applicable credits any time to accomplish the 2. They want to maintain total control over their business interests until retirement best plan 5. Any minority transfer of business interests will receive a 25 % discount . The long -term AFR is 3 % Their life expectancies for GRAT or QPRT purposes are as follows Benny Martha 95% 5 years 5 years 75% 20 years 25 years 50 % 30 years 35 years 25% 35 years 7. Their principal residence and the vacation home are appreciating at 10 % per year and are 40 years 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 to reduce their gross estate and achieve their goals . Be specific and quantify the impact of each recommendation 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 $ 4,769,800 in 2022. The annual exclusion was $13,000 in 2009 and 2012 , and is $16,000 in 2022 . 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 . Assume the combined last medical and funeral costs are $100,000 and the estate administration cost is $150,000

Benny and Martha Franklin have come to you for help with their estate plan. Personal Background and Information Benny and Martha Franklin are 55 -years-old and have been happily married for 35 years. They are both in excellent health and expect they will live well into their 90s. They live in Virginia and have three children and six grandchildren. The Franklins plan to retire at age 65 . The chart below depicts their family as of today. Joe and James are both married and work in the family businesses. Jeff is a lawyer and is recently divorced with custody over his daughter, Elizabeth. Joe's youngest child, Ivan, was born as a special needs child who needs full time care. Benny and Martha have a great relationship with their daughterin-laws and consider them part of the family. Benny graduated from MIT and is an aerospace engineer. He started and owns three companies that produce components for various weapons systems for the United States Department of Defense. Joe and James both graduated from West Point Academy and spent several years in the military. They have been working for Benny in various roles for the last couple years. The three businesses are structured as C corporations and are owned entirely by Benny and Martha. The three businesses have appreciated over the last five years at an annual compound rate of growth of 10 percent. Benny expects this rate of growth to continue indefinitely. Martha majored in communications at Boston College and has been a stay-at-home mom. She now helps with the grandchildren regularly and volunteers with the Wounded Warrior Project. Education Information Benny and Martha believe strongly in education and would like their five grandchildren to all attend MIT. Ivan is not expected to attend college. The current cost of undergraduate studies at MIT is $63,000 per year. Tuition has been increasing at an average rate of seven percent and is expected to continue at Vacation Home Benny and Martha used to spend summers with friends at a home on Martha's Vineyard. They had such fond memories that once they became successful, they decided to purchase a home on Martha's Vineyard. They spend a substantial amount of time with their children and grandchildren at the vacation home every summer. Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha. The policy has a death benefit of $2 million. Assume the replacement value of the policy is $200,000. The policy 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 entities. 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 each 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 established as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns age 45 . The trusts were not set up as crummy trusts. The trusts name the children (born and unborn) of each of the boys as the contingent beneficiaries for each trust. In 2012, Benny gave Uncle George a gift of $1,013,000 in cash. His uncle had been inspirational when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. Goals: Prepare a Proper Estate Plan 1. Minimize estate taxes. 2. Fund college education for the five grandchildren. 3. Set up a special needs trust for Ivan's future needs. 4. Ensure that the vacation home is a permanent family home for children and grandchildren. 5. Keep 100 percent of business interests in the family. 6. 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. Financial Statements Balance Sheet Statement of Income and Expenses 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 retirement. 3. They are willing to fully utilize their gift and estate applicable credits any time to accomplish 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: 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 to reduce their gross estate and achieve their goals. Be specific and quantify the impact of each recommendation. 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 $4,577,800 in 2020. The annual exclusion was $13,000 in 2009 and 2012 , and is $15,000 in 2020 . 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. Assume the combined last medical and funeral costs are $100,000 and the estate administration cost is $150,000. Case Appendix Exhibit 14.7| Tax Rate Schedule for Taxable Gifts and Estates (2009)