Peony owns all of the Garden Corporation common stock with a basis of $400,000 and a value of $900,000. Her grandchildren own nonvoting preferred stock with a basis and value of $540,000 that pays a 6% annual dividend. Peony would like to transfer her ownership of Garden to her grandchildren but retain a guaranteed income from Garden. What would be the most tax effective method of making this transfer?

a. Garden redeems all of Peony's common stock and issues her a 20-year bond for $900,000 that pays 6% interest.

b. Peony sells her common stock to her grandchildren. They pay for the stock on the installment method over 20 years with a 6% interest on the unpaid balance.

c. Peony exchanges 60% of her common stock with her grandchildren for all of their preferred stock. The grandchildren then have control and Peony retains 40% of the common stock.

d. Garden redeems Peony's common stock and issues her preferred stock with a 6% yearly dividend rate. Garden exchanges the grandchildren's preferred stock for common stock.