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Wendy and Harrison have been married for 55 years and are both in good health. Wendy and Harrison live in a community property state. They have the following children and grandchildren: Children Grandchildren Ali Age 48 3 children Jae Age 35 4 children Constance Age 32 No children Edie Deceased 1 child Ali, a web designer, is married, healthy, and happy. Wendy and Harrison adore Alis husband, Justin, and their three children. Jae, a high net worth investment consultant, was recently divorced and her ex-husband, Randall, has custody of their four children. Wendy and Harrison, never quite cared for Randall, as he always seemed to be quite snooty. Since the divorce, the relationship between Wendy and Randall has been very strained. Since her divorce, Jae has had somewhat of a mid-life crisis. She recently rented a penthouse apartment and bought a new Porsche. Jae has also been dating Chase, a 21-year-old swimsuit model. While Wendy and Harrison are confident that this is only a passing phase, they are concerned about giving any gifts to Jae or her children outright. Constance is a yoga teacher who has never been married and has no children. Constance. Constance has aspirations of going to graduate school to become a entrepreneur and own her own studio but is concerned about taking on debt to pursue additional education. Wendy and Harrison are considering helping Constance pay for graduate school tuition. Edie, Wendy and Harrisons youngest child, was a bit of a wild child. Edie died in a tragic 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, Edie had given birth to a baby girl named Mira. At the time, Edie gave the baby to the babys father, an older married man, although no official adoption was ever transacted. Wendy and Harrison still do not know about Mira. Wendy and Harrison own Hoppy Days Brewing, a popular brewery. Justin, Alis husband, has worked at the business since he was in high school. Justin is now the manager and handles most of the day-to-day functions, with very little input from Wendy and Harrison. Wendy and Harrison would like to reward Justin for all of his hard work by giving Justin and Ali 1/2 of the business and giving the remaining 1/2 of the business to Jae and Constance equally. They do not want Jae and Constance to have any control over the business, just to have an income interest. Alis youngest child, Mari, was born with a serious physical disability. To provide additional support for Mari, Harrison created an irrevocable trust with Mari as the sole beneficiary with a $5,000,000 transfer of separate property in 2013. The trust meets the requirements of Section 2503(c). Harrison and Wendy made the following additional lifetime transfers: In 2010, Harrison gave Ali, Jae, and their spouses $500,000 each of community property. In 2014, Harrison gave Ali, Jae, and their spouses $350,000 each of his separate property. Harrison paid gift tax of $125,500 on these gifts. Harrison and Wendy paid $168,000 in the years 1994-1997 directly to Stanford University for Ali to achieve a degree in Computer Science (assume $42,000 per year). Harrison and Wendy paid $100,000 in the years 2007-2010 directly to UCLA for Jae to achieve a degree in Finance (assume $25,000 per year). Harrison and Wendy paid $34,000 in the years 2010-2013 directly to West Texas A&M University for Constance to achieve a degree in Education (assume $8,500 per year). Harrison and Wendy paid $400,000 to Childrens Hospital for a lung transplant for Mari in 2017. In 2006, Wendy gave Ali $250,000 of her separate property as an anniversary gift. In 2018, Wendy gave each of the grandchildren of which she was aware (assume all grandchildren had been born by 2018) $385,000 of her separate property. Wendy and Harrison have never elected to split gifts of separate property. Harrison and Wendy estimate the following at each of their deaths: The last illness and funeral expenses are expected to be $150,000 per person. Estate administration expenses are estimated at $325,000 per person. Wills Harrison does not have a will. Wendy has an outdated will leaving most of her probate assets to Harrison. Clauses from Wendys Statutory Last Will and Testament I, Wendy, 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.

I have been married but once, and only to Harrison with whom I am presently living. Out of my marriage to Harrison, four children were born, namely Ali, Jae, Constance, and Edie. I have adopted no one nor has anyone adopted me.

I leave my Vintage Bentley and House Boat to my daughter, Jae.

I leave the life insurance proceeds on my life to my daughter, Ali.

I leave Vacation Home 2 to my daughter, Edie.

I leave Auto 2 to the Methodist Church, a qualified charity.

I give the residue of my estate to Harrison, my husband.

In the event that Harrison 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, Ali, Jae, Constance, and Edie, in equal and 1/4 shares.

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 legatees descendents, otherwise his or her share of all of my property of which I die possessed shall be paid equally among the surviving named legatees.

I name my best friend Keith to serve as the executor of my succession with full seizin and without bond.

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.

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 childrens share, regardless of whether my spouse survives me.

STATEMENT OF FINANCIAL POSITION (HARRISON & WENDY) ASSETS LIABILITIES AND NET WORTH Cash/Cash Equivalents Liabilities JTROS Cash $ 3,232,570 Current Liabilities Total Cash/Cash Equivalents $3,232,570 CP Credit Card 1 $317,688 CP Credit Card 2 $22,755 Invested Assets Total Current Liabilities $340,443 CP Hoppy Days Brewery $ 11,250,000 H Inherited Stock Portfolio $ 711,000 W Life Insurance on Wendy $ 2,000,000 Long-Term Liabilities TC Rental Property $ 875,644 CP Mortgage - Primary $925,605 W Inherited Stock Portfolio $ 5,510,000 W Mortgage - Vacation Home 2 $204,555 Total Investments $20,346,644 CP Yacht $742,125 Total Long-Term Liabilities $1,872,285 Personal Use Assets CP Primary Residence $ 2,850,000 H Vacation Home 1 $ 1,233,300 Total Liabilities $2,212,728 W Vacation Home 2 $ 645,200 CP Personal Property $ 500,000 H Auto 1 $ 94,300 W Auto 2 $ 48,350 Net Worth $30,210,561 CP Vintage Bentley $ 348,725 CP Yacht $ 3,124,200 Total Personal Use $8,844,075 Total Assets $32,423,289 Total Liabilities and Net Worth $32,423,289 Notes to Financial Statements:

Assets are stated at fair market value (rounded to even dollars).

Liabilities are stated at principal only (rounded to even dollars).

. The adjusted basis of the primary residence is $1,600,000.

. Wendy received vacation home 2 from her grandmother, Lois. Wendy and Lois were always very close and Lois gave her the home when Ali was first born so Wendy could enjoy motherhood as much as Lois had. Lois purchased the vacation home for $15,000 and the FMV of the home at the date of transfer was $280,000. The FMV when Lois died was $350,000.

. The life insurance policy has Wendy listed as the designated beneficiary. The inherited stock portfolios are Transfer on Death accounts with Ali, Jae, and Constance as the listed beneficiaries of both Harrison and Wendys shares.

. The Yacht was purchased by Harrison after his House Boat was destroyed by a Hurricane.

. Property Ownership: CP - Community Property. TC Tenants in Common with Harrison owning 80% and Wendy owning 20%. JTROS Joint with rights of survivorship with Harrison & Wendy. H - Husband separate. W - Wife separate.

. 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 2023 estate and gift tax rates and annual exclusion apply unless otherwise indicated. (Numbers are rounded for convenience.)

1. Which of the following transfer mechanisms would be appropriate for the transfer of Hoppy Days Brewing Salons to Jae, Ali, and Constance assuming Wendy and Harrison did not want to make an outright gift of the company to them? For full credit, explain for each transfer option below why it is or is not appropriate. 1. Private Annuity. 2. SCIN. 3. Family Limited Partnership. 4. QPRT.

2. If Wendy died today, which of the following statements is true regarding the transfers made in her will? For full credit, explain why each statement is true or false. (a) Harrison will receive Wendys interest in the inherited stock portfolio. (b) Ali will receive the proceeds of the life insurance policy. (c) Jae will receive the yacht in place of the house boat. (d) Mira may potentially receive Vacation Home 1 as Edies rightful heir.

3. Assuming Wendy died today, calculate her gross estate.

4. Assuming Wendy died today, calculate her probate estate.

5. Ignoring the above data, assume that Wendy died today and the estate tax due was $4,588,325 and Keith is appointed executor. Unfortunately, Keith forgot to file an Estate Tax Return (Form 706) and pay the estate tax due until 125 days after the returns due date. How much is the failure-to-file penalty? How much is the failure-to-pay penalty?

6. Identify and value each taxable gift made by Harrison during his life. Where appropriate, explain any exemptions or exclusions that applied.

7. Calculate Harrisons gift tax due in each year he made a taxable gift. Show your work. Even if the tax due is zero, show your calculation in each year there is a taxable gift.

8. Identify and value each taxable gift made by Wendy during her life. Where appropriate, explain any exemptions or exclusions that applied.

9. Calculate Wendys gift tax due in each year she made a taxable gift. Show your work. Even if the tax due is zero, show your calculation in each year there is a taxable gift.

14. Jarrett contributed $11,580,000 to a revocable living trust in 2020. He named himself as the income beneficiary and his only daughter as the remainder beneficiary. The term of the trust was equal to Jarretts life expectancy. Jarrett died in 2023, when the fair market value of the trusts assets is $13,785,000. How much is included in Jarretts probate estate related to the revocable living trust? Why?

15. Clarissa contributed $3,285,000 to an irrevocable trust with no retained powers in 2021 and did not retain any powers over the transferred assets. She named her only son as the sole income and remainder beneficiary and paid gift tax at the date of the transfer of $1,423,000. In 2023, Clarissa died of ALS. The fair market value of the property in the irrevocable trust was $14,250,000 at the date of her death. What is the value of assets that are included in Clarissas gross estate? Why?

16. Jose sold his vacation home to the St. Edwards Church. The vacation home had a fair market value of $500,000. Jose inherited the vacation home from his father three years prior to the sale when the fair market value of the home was $120,000. Joses father had an adjusted basis in the vacation home equal to $150,000. The full sales price paid by St. Edwards Church to Jose was $75,000. What amount of capital gain/loss would Jose report on his tax return for the year related to this sale?

17. Oscar made the following transfers during the year: 2000 shares of Amazon stock to the American Red Cross. At the date of the contribution, the stock had a fair market value of $133.00 per share. Oscars adjusted taxable basis in the stock was $78 per share and he held the stock long term. $50,000 to Oklahoma State University. The $50,000 contribution allows him to purchase football season tickets. Oscar also bought the football season tickets at a cost of $25,000. $100,000 to Ronald McDonald House during a local telethon annual fund drive. In return for the $100,000 contribution, Oscar received a Ronald McDonal House coffee mug with the Hamburglars image on it valued at $15. Ignoring any AGI limitations, what is Oscars maximum charitable income tax deduction for this year?

18. Chase and Kelsea have been married for 10 years. Chase had a net worth of $26,000,000 when he died in 2023. Which of the following scenarios would incur the lowest overall (at Chases death and Kelseas death) estate taxes assuming the property transfers at equal value at the death of both individuals and utilizing 2023 estate tax rates? Assume that portability is not elected. Which of the following scenarios would incur the highest overall (at Chases death and Kelseas death) estate taxes assuming the property transfers at equal value at the death of both individuals and utilizing 2023 estate tax rates? Assume that portability is not elected. For full credit, show your calculations for each scenario and justify your answer. a. Chases will directs the transfer of $18,000,000 to his two children and the remainder of his assets to his wife, Kelsea. b. Chases will directs that all of his property is transferred to Kelsea. c. At Chases death, specific bequests totaling $3,000,000 are transferred per the direction of the will to individuals other than Kelsea. The remainder of the assets are transferred to a trust with the income payable to Kelsea for her life and the remainder interest payable to the children at Kelseas death. Chases executor elected to treat this as a QTIP trust. d. In his will, Chase funds a trust with $12,920,000 for the benefit of his two children. Kelsea will receive an annual income distribution from the trust. All other assets will transfer to Kelsea.

19. Sophie has been married to Joe for 4 years. Sophie is a citizen of the United Kingdom. Joe would like to make an inter vivos transfer to Sophie. What is the maximum amount that Joe can transfer to Sophie without incurring transfer taxes or utilizing any of his applicable credit during 2023?

20. Emily died in 2023. She had been married to Aaron for 22 years, and the two had amassed a community property estate of $30,000,000. Emilys will directs three specific bequests to her mother, sister, and father of $1,000,000, $500,000, and $1,000,000, respectively and creates a bypass trust to receive property equal to any remaining applicable estate tax credit available after her specific bequests. The bypass trust gives Aaron the right to income for his life and the remainder of the trust to her children and leaves the residue of the estate to Aaron. Emilys will directs the residue to be used to pay the estate taxes. What is the marital deduction on Emilys federal estate tax return