Gift and Estate Problems:

Problem 1:

Kent Poff is a miser and dies in 2020, leaving an estate of $25,000,000. His 3 children are his beneficiaries.

REQUIRED:

Prepare the estate tax return for 2020.

Problem 2:

Kent Poff is getting old and is thinking about his estate. His children are his beneficiaries. Therefore he:

1. Makes gifts of $250,000 to each of his 3 children in 2017. Therefore, the total of the gifts is $750,000.

2. Makes gifts of $500,000 to each of his 3 children in 2018. Therefore, the total of the gifts is $1,500,000.

3. Makes gifts of $750,000 to each of his 3 children in 2019. Therefore, the total of the gifts is $2,25,000.

4. Makes gifts of $1,000,000 to each of his 3 children in 2020. Therefore, the total of the gifts is $3,000,000.

5. Dies later in 2020 leaving an estate of $17,500,000.

REQUIRED:

1. Prepare the gift tax returns for 2017, 2018, 2019 and 2020 and the estate tax return for 2020.

2. Reconcile the results of Problem 1 and Problem 2 (i.e., show mathematically the differences in Problem 1 and Problem 2 like I did in class). Explain in words why the results are different.

Problem 3:

Kent Poff (age 70) is thinking about his estate. Kent has been married to Karen (age 67) for 45 years and wants to leave her enough to make sure that she is comfortable for the rest of her life. Kent and Karen will both leave any remaining estates to their 3 children. Therefore:

1. Kent makes gifts of $125,000 to each of their 3 children in 2017 and Karen makes gifts of $125,000 to each of their 3 children in 2017. Therefore, the total of the gifts is $750,000.

2. Kent makes gifts of $250,000 to each of their 3 children in 2018 and Karen makes gifts of $250,000 to each of their 3 children in 2018. Therefore, the total of the gifts is $1,500,000.

3. Kent makes gifts of $375,000 to each of their 3 children in 2019 and Karen makes gifts of $375,000 to each of their 3 children in 2019. Therefore, the total of the gifts is $2,250,000.

4. Kent makes gifts of $500,000 to each of their 3 children in 2020 and Karen makes gifts of $500,000 to each of their 3 children in 2020. Therefore, the total of the gifts is $3,000,000.

5. Kent dies later in 2020 leaving an estate of $17,500,000. Karen dies after Kent in 2020.

REQUIRED:

1. Prepare the gift tax returns for 2017, 2018, 2019 and 2020 and the estate tax returns for 2020:
   1. Suppose Kent gives all his estate to Karen.
   2. Suppose Kent gives the amount to Karen to eliminate his estate tax.
   3. Suppose Kent gives $10,000,000 to Karen and the balance of his estate to his kids.
   4. Can you think of some other alternative that results in less total gift and estate tax to Kent and Karen?
   5. Which is the best result? Explain.

2. Reconcile the results of Problem 2 and Problem 3 (i.e., show mathematically the differences in Problem 2 and Problem 3 like I did in class). Explain in words why the results are different.