COMPREHENSIVE CASE Wendy and Holden Background Wendy and Holden have been married for 50 years and are both in good health. Wendy and Holden live in a community property state. They have the following children and grandchildren: Children Grandchildren Heather Age 45 3 children Kimberly Age 35 4 children Jennifer Age 32 No children Amy Deceased 1 child Heather, an estate planning attorney, is married, healthy, and happy. Wendy and Holden adore Heather's husband, Winston, and their three children. Kimberly, a high net worth investment consultant, was recently divorced and her ex- husband, Brian, has custody of their four children. Wendy and Holden, never quite cared for Brian, as he always seemed to be quite snooty. Since the divorce, the relationship between Wendy and Brian has been very strained. Since her divorce, Kimberly has had somewhat of a mid-life crisis. She recently rented a penthouse apartment and bought a new Jaguar. Kimberly has also been dating Kevin, a 21-year-old swimsuit model. While Wendy and Holden are confident that this is only a passing phase, they are concerned about giving any gifts to Kimberly or her children outright. Jennifer is an elementary school teacher who has never been married and has no children. Jennifer. Jennifer has aspirations of going to graduate school to become a diagnostician but is concerned about taking on debt to pursue additional education. Wendy and Holden are considering helping Jennifer pay for graduate school tuition. Amy, Wendy and Holden's youngest child, was a bit of a wild child. Amy died in a tragic motorcycle accident in her senior year of college while she was on her way home to tell her parents about a big secret she had been keeping. The summer before, Amy had given birth to a baby girl named Grace. At the time, Amy gave the baby to the baby's father, an older married man, although no official adoption was ever transacted. Wendy and Holden still do not know about Grace. Wendy and Holden own Curl Up & Dye, a popular chain of beauty salons. Winston, Heather's husband, has worked at the business since he was a kid. Winston is now the manager and handles most of the day-to-day functions, with very little input from Wendy and Holden. Wendy and Holden would like to reward Winston for all of his hard work by giving Winston and Heather 1/2 of the business and giving the remaining 1/2 of the business to Kimberly and Jennifer equally. They do not want Kimberly and Jennifer to have any control over the business, just to have an income interest. Heather's youngest child, Andrew, was born with a serious physical disability. To provide additional support for Andrew, Holden created an irrevocable trust with Andrew as the sole beneficiary with a $5,000,000 transfer of separate property in 2013. The trust meets the requirements of Section 2503(c).Holden and Wendy made the following additional lifetime transfers: In 2010, Holden gave Heather, Kimberly, and their spouses $200,000 each of community property. In 2014, Holden gave Heather, Kimberly, and their spouses $200,000 each of his separate property. Holden paid gift tax of $347,760 on these gifts. Holden and Wendy paid $130,000 in the years 1993-1996 directly to Baylor University for Heather to achieve a degree in Religion (assume $32,500 per year). Holden and Wendy paid $60,000 in the years 2001-2004 directly to Texas State University for Kimberly to achieve a degree in Finance (assume $12,000 per year). Holden and Wendy paid $32,000 in the years 2004-2007 directly to West Texas A&M University for Jennifer to achieve a degree in Elementary Education (assume $8,000 per year). Holden and Wendy paid $350,000 to Children's Hospital for a lung transplant for Andrew in 2017. In 2006, Wendy gave Heather $100,000 of her separate property as an anniversary gift. In 2014, Wendy gave each of the grandchildren of which she was aware (assume all grandchildren had been born by 2014) $100,000 of her separate property. Wendy and Holden have never elected to split gifts of separate property. Holden and Wendy estimate the following at each of their deaths: The last illness and funeral expenses are expected to be $100,000 per person. . Estate administration expenses are estimated at $250,000 per person. Wills Wendy does not have a will. Holden has an outdated will leaving most of his probate assets to Wendy. Clauses from Holden's Statutory Last Will and Testament I, Holden, being of sound mind and wishing to make proper disposition of my property in the event of my death, do declare this to be my Last Will and Testament. I revoke all of my prior wills and codicils. 1. I have been married but once, and only to Wendy with whom I am presently living. Out of my marriage to Wendy, four children were born, namely Heather, Kimberly, Jennifer, and Amy. I have adopted no one nor has anyone adopted me. 2. I leave my Vintage Mustang and House Boat to my daughter, Kimberly. 3. I leave the life insurance proceeds on my life to my daughter, Heather. 4. I leave Vacation Home 1 to my daughter, Amy. 5. I leave Auto 1 to the Methodist Church, a qualified charity. 6. I give the residual of my estate to Wendy, my wife. 7. In the event that Wendy predeceases me or fails to survive me for more than six (6) months from the date of my death, I leave any interest of my estate determined to be payable to her to my children, Heather, Kimberly, Jennifer, and Amy, in equal and 1/4 shares. 8. In the event that any of the named legatees should predecease me, die within six months from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to him or her, then such interest will pass to the said legatee's descendents, otherwise his or her share of all of my property of which I diepossessed shall be paid equally among the surviving named legatees. 9. I name my best friend Keith to serve as the executor of my succession with full seizin and without bond. 10. I direct that the expenses of my last illness, funeral, and the administration of my estate shall be paid by my executor as soon as practicable after my death and allocated against the residual estate. 1 1. Since I have made numerous lifetime gifts to my children, all inheritance, estate, succession, transfer, and other taxes (including interest and penalties thereon) payable by reason of my death shall be allocated to the children's share, regardless of whether my spouse survives me.STATEMENT OF FINANCIAL POSITION (HOLDEN & WENDY) ASSETS LIABILITIES AND NET WORTH Cash/Cash Equivalents Liabilities CP Cash 520,000 Current Liabilities Total Cash/Cash Equivalents 520,000 CP Credit Card 1 106,500 CP Credit Card 2 4,825 Invested Assets Total Current Liabilities $ 111,325 CP Curl Up & Dye Salons $ 12,500,000 H Inherited Stock Portfolio $ 6,500,000 H Life Insurance on Holden $ 2,000,000 Long-Term Liabilities CP Rental Property 500,000 CP Mortgage - Primary $ 875,000 W Inherited Stock Portfolio $ 1,250,000 W Mortgage - Vacation Home 2 $ 200,000 Total Investments $22,750,000 H Yacht 125,000 Total Long-Term Liabilities $ 1,200,000 Personal Use Assets CP Primary Residence $ 1,750,000 H Vacation Home 1 525,000 Total Liabilities $ 1,311,325 W Vacation Home 2 $ 650,000 CP Personal Property $ 750,000 H Auto 1 $ 82,000 W Auto 2 $ 77,000 Net Worth $27,007,675 H Vintage Mustang $ 115,000 H Yacht 1,100,000 Total Personal Use $ 5,049,000 Total Assets $28,319,000 Total Liabilities and Net Worth $28,319,000Notes to Financial Statements: 1. Assets are stated at fair market value (rounded to even dollars). 2. Liabilities are stated at principal only (rounded to even dollars). 3. The adjusted basis of the personal residence is $600,000. 4. Wendy received vacation home 2 from her grandmother, Lois. Wendy and Lois were always very close and Lois gave her the home when Heather was first born so Wendy could enjoy motherhood as much as Lois had. Lois purchased the vacation home for $30,000 and the FMV of the home at the date of transfer was $200,000. The FMV when Lois died was $250,000. 5. The life insurance policy has Wendy listed as the designated beneficiary. The inherited stock portfolios are Transfer on Death accounts with Heather, Kimberly, and Jennifer as the listed beneficiaries of both Holden and Wendy's shares. 6. The Yacht was purchased by Holden after his House Boat was destroyed by a Hurricane. 7. Property Ownership: CP - Community Property. . H - Husband separate. . W - Wife separate. 8. Insurance face value (death benefit) and the cash value of $2,000,000 are the same. Answer the following questions. Assume the facts given in the fact pattern and that the 2018 estate and gift tax rates and annual exclusion apply unless otherwise indicated. (Numbers are rounded for convenience.)