Question 1.

Jaime a simple Professor of Practice at Boston University has a life long dream of owning a winery.He has studied the soils and topography of both New York State and California.It is obvious that California wine and grapes are superior to those of New York; however, there are certain grapes that are able to be grown in New York such as Riesling and Marquette that are going to be well and have reached world acclaim.The cost of land in California is significantly higher in grape growing regions because of the success of other vintners and as such, Jaime has chosen to purchase a 50 acre plot of land in the Seneca Lake region of the Finger Lakes in New York.The soil is very conducive to growing grapes according to a study performed by Cornell's agriculture management group.The 50 acre purchase has taken most of Jaime's available cash and so he may need to take on a partner in this venture down the road.Further, he is always open to bringing on other partners in the venture who can bring expertise that Jaime doesn't have.Jaime wants to start his business on the right footing and has come to your offices for advice on what type of entity he should form for his new business or businesses.Discuss in depth, the types of entities that Jaime could form, the advantages and disadvantages of each with particular emphasis on the tax considerations and which one or ones you would recommend.

Question 2

Building on question 1, fast forward 25 years.Jaime has made an incredibly successful wine operation in the Northeast.He has vineyard lands along the Seneca and Cayuga wine trails in the Finger Lakes of New York.Many of his wineries are considered some of the best on the East Coast, and one of them, "Alexandra T" was recently named winery of the year by Wine Spectator magazine.In all, there are 5 different wineries operations each in a different corporation.All 5 are in a separate S-Corporation with all the stock owned by the parent Company Smith Vineyards Inc, also an S-Corporation.Jaime and his wife Alexandra own 75% of the stock of the parent Company which means they own 75% of all of the value of the entities.Alexandra and Jaime are each other's second marriage.Jaime has three children from his prior marriage and Alexandra has 2 children from her previous marriage.Jaime and Alexandra's family have been an important part of the Company's growth.Jaime's brother, Tom became a partner in the business providing much needed capital when the wineries were in a growth stage.Tom owns 20% of the remaining stock and he has 2 children who work at the winery on weekends doing wine tasting, but have other jobs during the week.Alexandra's sister Karen owns the remaining 5% of the outstanding shares.Karen has 3 children, none of which are involved in the wine operations.However, Karen has one son, Stephen, who has an engineering degree from Georgia Tech and has been helpful in development of the winery's bio-dynamic farming operations.Stephen has expressed an interest in becoming a bigger part of the overall operations as he enjoys the laid back lifestyle the winery offers.Alexandra has been the driving force behind the winery's commitment to bio-dynamic, organic farming.She has been in charge of the vineyard operations and overall marketing.Alexandra's two sons have also been very involved in the winery operations.Albert received his degree from Boston University in Economics and Entrepreneurship.After a few summers working as a landscaper, he learned that he loved to work the land and has been the one to implement his mother's organic farming techniques at the various vineyards.Nino graduated from Boston University with a degree in information studies.He has been in charge of the information systems for the wineries.He has also been responsible for the social media and other electronic marketing methods that have catapulted the growth in the company's exports to other states and overseas markets.Only Lloydtopher, of Jaime's three children has been involved in the wineries.Lloyd, a graduate of Harvard with a degree in accounting and the Boston College of Law, has been the CFO of the Company and the lead wine maker following in his father's footsteps.It has been Lloyd' adept touch and penchant for knowing just when to harvest the grapes that has been crucial to the recent accolades received by various wine rating agencies.Jay and Allyson are Jaime's other two children and although they come and visit the wineries frequently, they are both medical professionals and have never expressed an interest in being a part of the wine business.

Of course, Jaime has been the visionary leader that we have come to expect in a family business leader.He gave up teaching after Lloyd graduated from undergraduate school to concentrate on the wine business.His combination of accounting and legal knowledge, as well as his many contacts in the business world has been one of the major reasons for the winery's success.His greatest contribution however, is that of winemaker.After much trial and error, he has become one of the best wine makers in the world, owning much of his success to his grandfather's teaching and the assistance of James Smiths, one of the greatest wine makers ever.

All the land is owned by Jaime and Alexandra in separate LLC's.Each LLC charges the respective S-Corporations rent for the use of the land.The rent charged is usually enough to cover the cost of the real estate taxes, insurance and mortgage on the properties.However, 2 of the LLC's have loss carryforwards since they just started operations and the business end of the winery could not afford a fair market rent.The LLC's elected to be treated as partnerships.Alexandra and Jaime have included their children as minority owners of the LLC's.

Based on the information provided and our various assignments during the year, discuss in detail what the tax return would look like for the various LLC's and the winery operations that use S-Corporations.Be specific if there are any special deductions that any of the entities would be entitled to take or could take.It may be helpful to discuss the forms that each might use and how the tax returns would be compiled.If applicable, comment on any personal tax issues that may be considered due to the structure employed in this scenario.Is there a better structure to minimize the tax situation of the entire wine operation?

Question 3

Using the information provided in questions one and two consider the following additional information.In conjunction with the succession plan that is being made in question 2, Jaime and Alexandra Smith face the difficult question of planning for their demise.Despite Jaime's vast knowledge in the field of Estate planning, he has come to you as the families most trusted advisor to made an estate plan that would express their wishes.Jaime and Alexandra have been incredibly successful and they wish to be fair to all of their children and grandchildren.They also have an affinity for certain charities and wish that charitable giving be a big part of their overall estate plan.The couple has the following joint assets:

Smith

Estate Plan

Personal Financial Statement

12/31/2030

Cash

$350,000

Stocks, Bonds other Securities

3,500,000

Retirement Funds

1,650,000

Florida Home

750,000

New York Home

450,000

Napa Valley Home

825,000

Stock in Closely Held Businesses

Smith Vineyards Inc. 75%

15,000,000

Smith Wine Lands Inc. 100%

7,500,000

Total Assets

$30,025,000

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Liabilities

Mortgage on Napa Home

$600,000

Equity

29,425,000

Total Liabilities and Equity

$30,025,000

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You should note that Jaime intentionally put the vineyard land in separate corporations under the parent Smith Wine lands Inc., in the event that he wanted to sell off a piece of the property to an interested party.Each of the Smith Vineyards Corporations and subsidiaries pays rent to the Smith Wine Lands Corporation as a way to reduce taxes, further insulate the owners from liability and balance out the earnings.None of the corporations pays excessive rent compared to the marketplace.

In addition, Jaime and Alexandra set up a life insurance trust for $5,000,000 with a second to die term life insurance policy.Their 5 children are the beneficiaries of the insurance trust and have executed their crummy notices each year so that the trust is valid and the gifts made were present interests for tax purposes.The trust has a "pour over" provision which allows it to purchase assets from the estate of the last to die to provide liquidity to pay some or all of the estate tax that may be due.Any assets of the trust after this purchase from the estate are to be distributed to their children in equal shares per stirpes.

Further, Jaime and Alexandra have been big proponents of ice sports.They wish to foster the men's club hockey program and the woman's synchronized skating programs at Boston University.They wish to leave a legacy to help future hockey players and synchronized skaters enjoy the riches that a Boston University education provides coupled with maturation that participation in an athletics can afford a young person.As such they wish to provide $5,000,000 to build a new ice hockey arena called the Smith Pavilion on South Campus.

Lastly, the couple wants to provide for their retirement.For being so successful, Jaime and Alexandra live fairly modestly.They anticipate that they need a net of $350,000 per year to pay their bills and maintain their lifestyle.They anticipate a bit more travel between their 3 homes.Presently, Jaime has collected a salary of $200,000 as the CEO and Alexandra has collected a salary of $250,000 as the President and Chief Marketing officer.They have paid their children who are involved in the business well but not above the market rate for the work that they perform.For any of their children or grandchildren not involved in the business they have made gifts of $28,000 per year as allowed by the gift tax laws without having to file a gift tax return.This amount seems to have kept the playing field level and equal.

Please prepare estate tax return form as if Jaime and Alexandra died this tax year.Comment briefly on any planning techniques that Jaime and Alexandra's may wish to employ that would have lowered their overall estate cost while passing their total estate equally to their children.