1. Planning to Save Federal Estate Taxes. James and Jenni Moore, your wealthy aunt and uncle, have the following desired heirs:

• Nephew, William, age 25.

• Niece, Walda, age 29.

• Nephew, Butch, age 18.

• Niece, Bianca, age 14.

• Nephew, Colin, age 5.

• WKU Foundation, to which they desire to gift either during their lifetime, or at the time of their death (or partly during their lifetime and partly at the time of their death), a total of $10,000,000 to establish scholarship funds for students in WKUs Personal Financial Planning Program

James and Jenni Moore desire each of their nephews and nieces to lead their own lives, and to not become dependent upon them. But, they also believe that they should assist their nephews and nieces with the funding of any educational expenses, or assist them should any adverse financial circumstances occur (not a result of the nephews or nieces own making). Hence, James and Jenni Moore dont desire that their nieces and nephews be gifted, outright, substantial sums currently. In fact, James and Jenni Moore desire to ensure that, should they both pass away, no substantial sums (other than for necessary health care, education and support) flow to their nephews or nieces prior to the age of 35 years.

William graduated from Harvard, but has $10,000 outstanding of student loan debt.

Walda graduated from WKU, and has no student loan debt, but has $12,000 of unpaid medical expenses due to a mountain biking accident a year ago, for she failed to secure health insurance after no longer being eligible on her parents life insurance policy.

Butch will be starting college in August of 2020, at WKU. The cost of his tuition is $11,000, and he will incur another $12,000 a year in room, board, and other expenses. Butch does not qualify for financial aid.

Bianca is starting college in four years, and has already been accepted to Yale, starting in August 2024 (a little over four years from now). Her tuition will be $50,000 a year, her books will cost $1,000 a year, and she anticipates another $15,000 of living expenses each year. Bianca will not qualify for financial aid.

Colin is likely to attend college when he is age 18 (13 years from now). Because his parents have substantial incomes, Colin is also highly unlikely to receive any financial aid awards. It is unknown where he will attend college. Colin is attending private school, which costs $18,000 a year in tuition.

James and Jenni Moore are residents of the State of Texas. (Assume for purposes of this question, that the State of Texas has no state income tax and no gift tax and no state inheritance tax and no state estate tax; in other words, you should only be concerned with federal income taxes and federal estate taxes).

James and Jenni Moore have a net worth of $100,000,000.

• $5,000,000 is the value of their home.

• Jenni Moores traditional IRA is worth $5,000,000.

• James has an individual investment account in the amount of $45,000,000. It consists of individual stocks and bonds, all of which are liquid and can easily be sold. Many of the stocks have appreciated greatly in value over the years, and have substantial unrealized capital gains at present.

• Jenni has an individual investment account, in the amount of $45,000,000. It consists of individual stocks and bonds, all of which are liquid and can easily be sold. Many of the stocks have appreciated greatly in value over the years, and have substantial unrealized capital gains at present.

• James and Jenni Moore possess substantial income from their investments. They are easily in the top marginal federal income tax rate 37% currently. James and Jenni Moore believe that federal income tax rates will likely rise significantly in the future, due to large federal budget deficits in recent years and the increasingly large federal debt.

• James and Jenni Moore would feel comfortable gifting up to 25% of their net worth now, if it would save substantially in gift, estate, or income taxes.

• James and Jenni Moore, and you, believe it is unlikely that the current $11,580,000 federal estate and gift tax exemption (per individual) will continue, after 2025. They anticipate that the federal estate and gift tax exemption will be lowered after 2025 to about $6,000,000 per individual. They anticipate that the federal estate tax rate will remain the same, at 40%. (The IRS has recently stated that, should the federal estate and gift tax exemption fall in future years, any gifts made in excess of the new exemption amount will not trigger any retroactive gift taxes to be due.)

James is currently age 70. Jenni is currently age 71.

Your aunt and uncle have come to you for advice on how to save estate taxes, should they both pass away. Given the fact that they like to undertake adventures around the world, which some might consider dangerous, while they are healthy they could die at any time.

What actions might you recommend they consider, to save estate taxes, should they both pass away. In your answer, discuss:

(A) gift tax exclusion for qualifying tuition expenses;

(B) gift tax exclusion for medical expenses;

(C) annual gift tax exclusion and some good ways to effectively utilize same, given the circumstances above. In this regard, discuss whether to utilize the annual gift tax exclusion to fund a Crummey Trust and how such a Crummey Trust might work, as to making gifts to it, the making of Crummey notices, and when distributions might occur.

(E) whether to utilize the Crummey Trust to purchase life insurance and considerations for why this might occur, or might not occur;

(F) whether, should either of them pass away, and be survived by the other, a Family Trust (using the remaining applicable exclusion amount, also called a credit shelter trust) and/or a Qualified Terminable Interest Property Trust (QTIP Trust) be established. Describe such trusts.

(G) whether to undertake a qualified charitable distribution from Jennis traditional IRA, and in what amount, and how often;

(H) whether to gift other monies to the WKU Foundation now, during their lifetimes, or wait until they both pass away and discuss the income tax consequences of such gifts; and

(I) whether Jenni Moore should convert all or part of her traditional IRA to a Roth IRA, and what the benefits of same might be.