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Name Relationship Age Occupation Health Comments Louie Husband 7 8 Retired Terminally Ill Kathleen Wife 7 5 Retired Excellent Jerry Son 5 0 CEO, Borellis

Name Relationship Age Occupation Health Comments
Louie Husband 78 Retired Terminally Ill
Kathleen Wife 75 Retired Excellent
Jerry Son 50 CEO, Borellis Casinos Excellent
Sal Son 47 Casino Floor Manager Excellent Married, one child
Emily Granddaughter (Sal's Child)22 Just graduated from college Excellent Getting married this summer
Ava Non-marital child (Louie's child with another woman)20 Cocktail waitress Excellent Relies on Louie for suppoINVESTMENT 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
Louie Louie Kathleen $2,000,000 Whole life $750,000 $20,000 Purchased 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 Borelli
Projected Cash Flow for the Current Year
Cash Inflows
Portfolio income $100,000
Social Security income $ 32,000
Private annuity income $ 55,000
Cash Outflows
Taxes (income and real estate) $ 25,000
Lifestyle expenses $120,000
Insurance premiums $ 20,000
Louie and Kathleen save any remaining income into their brokerage account.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
If Louie dies today, how much of the annuity will be included in his gross estate?
$0
$800,000
$950,000
$1,500,000

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