QUESTION TO BE ANSWERED: WHAT ARE THE STEPS BENNY AND MARTHA SHOULD TAKE IMMEDIATELY AND OVER THE LONG-TERM TO REDUCE THEIR GROSS ESTATE AND ACHIEVE THEIR GOALS. BE SPECIFIC AND QUANITY THE IMPACT OF EACH RECOMMENDATION.

PLEASE USE THE INFORMATION ABOVE TO ANSWER THE QUESTION. THANK YOU

ND MARTHA FRANKLIN CASE BENNY AND MAR d Martha Franklin have come to you for help with their estate plan. Benny and Martha Fran both in excellent health and three children and six NAL BACKGROUND AND INFORMATION Gartha Franklin are 55-years-old and have been happily married for 35 years. They are lent health and expect they will live well into their 90s. They live in Virginia and have hildren and six grandchildren. The Franklins plan to retire at age 65. The chart below depicts their family as of today. Benny & Martha Franklin Joc (age 34) 3 Children Jeff (age 29) 1 Child James (age 32) 2 Children Sydney (age 10) Elizabeth (age 2) Jordan (age 7) Will (age 8) Colin (age 5) Ivan (age 7) Joe and James are both married and work in the family businesses. Jeff is a lawyer and is recently divorced with custody over his daughter, Elizabeth. Joe's youngest child, Ivan, was born as a special needs child who needs full time care. Benny and Martha have a great relationship with their daughter-in-laws and consider them part of the family. Benny graduated from MIT and is an aerospace engineer. He started and owns three companies that produce components for various weapons systems for the United States Department of Defense. Joe and James both graduated from West Point Academy and spent several years in the military. They have been working for Benny in various roles for the last couple years. The three businesses are structured as C corporations and are owned entirely by Benny and Martha. The three businesses have appreciated over the last five years at an annual compound rate of growth of 10 percent. Benny expects this rate of growth to continue indefinitely. Martha majored in communications at Boston College and has been a stay-at-home mom. She now helps with the grandchildren regularly and volunteers with the Wounded Warrior Project. Education Information Benny and Martha believe strongly in education and would like their five grandchildren to all attend MIT. Ivan is not expected to attend college. The current cost of undergraduate studies at MIT is $63,000 per year. Tuition has been increasing at an average rate of seven percent and is expected to continue at that rate. Vacation Home Benny and Martha used to spend summers with friends at a home on Martha's Vin such fond memories that once they became successful, they decided to purcha Martha's Vineyard. They spend a substantial amount of time with their children and at the vacation home every summer. on Martha's Vineyard. They had u decided to purchase a home on vith their children and grandchildren Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha. The a death benefit of $2 million. Assume the replacement value of the policy is $200.000 TL is currently owned by Benny and the three boys are the beneficiaries. enny and Martha. The policy has licy is $200,000. The policy Investment Real Estate includes several pieces of commercial real estate held in separate entities The investment real estate includes several pieces of commercial real estate The value is expected to increase at an average rate of 10 percent per year. Estate Planning Documents Benny and Martha have basic wills that make optimal use of testamentary bypass marital deduction. The wills were designed to avoid all estate tax at the death of the first spouse and to make use of their lifetime exemptions. They also have durable powers of attorney for health care, advanced medical directives financial powers of attorney. Prior Gifts In 2000, Benny established a Charitable Remainder Annuity Trust and funded it with highly appreciated publicly-traded stock worth $1,000,000. Benny and Martha were the income beneficiaries and the Wounded Warrior Project was the remainder beneficiary. The trust was set up with a ten-year term. In 2009, Benny established an irrevocable trust for each of the three boys and funded each trust with $1 million. The trusts were set up in such a way as to allow the trustee of each trust to provide for the health, education, maintenance and support of the beneficiary. The trusts were established as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns age 45. The trusts were not set up as crummy trusts. The trusts name the children (born and unborn) of each of the boys as the contingent beneficiaries for each trust. In 2012, Benny gave Uncle George a gift of $1,013,000 in cash. His uncle had been inspirational when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. GOALS: PREPARE A PROPER ESTATE PLAN 1. Minimize estate taxes. Fund college education for the five grandchildren. Set up a special needs trust for Ivan's future needs. that the vacation home is a permanent family home for children and grandchil- dren. Keep 100 percent of business interests in the family. orain control of the business until retirement at which time James and Joe will take s y. over. Transfer an additional $2 million to the Wounded Warrior Project some time in the future. FINANCIAL STATEMENTS Balance Sheet ASSETS Cash/Cash Equivalents IT Checking and Savings Total Cash/Cash Equiv. $1,000,000 $1,000,000 LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities $100,000 $100,000 Invested Assets JT Marketable Securities JT Business Interests H 401(k) Plan JT Investment Real Estate Total Investments $6,000,000 6,000,000 1.250,000 3,000,000 $16,250,000 Long-Term Liabilities JT Mortgage - Primary Total Long-Term Liabilities $1,000,000 $1,000,000 Total Liabilities $1,100,000 Personal Use Assets JT Primary Residence JT Vacation Home JT Autos JT Household Furnishings H Life Insurance Total Personal Use $2,000,000 1,500,000 100,000 500,000 200,000 $4,300,000 Net Worth $20,450,000 Total Assets $21,550,000 Total Liabilities and Net Worth $21,550,000 Statement of Income and Expenses Statement of Income and Expenses Mr. and Mrs. Franklin Statement of Income and Expenses for Past Year CASH INFLOWS Totals Salaries Income $900,000 Investment Income $400,000 Total Cash Inflows $1,300,000 CASH OUTFLOWS Lifestyle Needs (includes debt repayment) $500,000 Income Taxes $400,000 Property Taxes $100,000 Homeowner's Insurance $25,000 Health Insurance $25,000 Long-term Care Insurance $25,000 Disability Insurance $25,000 Life Insurance $100,000 Total Fixed Outflows $1,200,000 Excess Cash Flow $100,000 CASE ASSUMPTIONS 1. They want to make maximum use of their annual exclusions. 2. They want to maintain total control over their business interests until retirement. 3. They are willing to fully utilize their gift and estate applicable credits any time to accom- plish the best plan. 4. The long-term AFR is 3%. 5. Any minority transfer of business interests will receive a 25% discount. 6. Their life expectancies for GRAT or QPRT purposes are as follows: Him Her 95% 5 years 5 years 75% 20 years 25 years 50% 30 years 35 years 25% 35 years 40 years 7. Their principal residence and the vacation home are appreciating at 10% per year and are expected to continue to grow at that rate. DIRECTIONS FOR THE CASE 1. What are the steps Benny and Martha should take immediately and over the long-term to reduce their gross estate and achieve their goals. Be specific and quantify the impact of each recommendation. Prepare the gift tax returns for 2009 and 2012, as well as for the current year, based on rec- ommendations. The applicable credit amount for gift tax purposes was $345,800 in 2009, $1,772,800 in 2012, and $4,417,800 in 2018. The annual exclusion was $13,000 in 2009 and 2012, and is $15,000 in 2018. Prepare an estate tax return for Benny as of the end of the current year after any recom- mended transfers. Assume he dies on December 31 of the current year. Assume the co bined last medical and funeral costs are $100,000 and the estate administration $150,000. CASE APPENDIX EXHIBIT 14.5 Over 50 but not over $10,000 Over $10,000 but not over $20,000 Over $20,000 but not over $40,000 Over $40,000 but not over $60,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) 18% of such amount. $1,800 plus 20% of the excess of such amount over $10,000 $3,800 plus 22% of the excess of such amount over $20,000 $8,200 plus 24% of the excess of such amount over $40,000 Over $60,000 bur not over $80,000 $13,000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18,200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23,800 plus 30% of the excess of such amount over $100,000 Over $150,000 but not over $250.000 $38,800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70,800 plus 34% of the excess of such amount over $250,000 Over $500,000 but not over $750,000 $155,800 plus 37% of the excess of such amount over $500,000 Over $750,000 but not over $1,000,000 $248,300 plus 39% of the excess of such amount over $750,000 Over $1,000,000 but not over $1,250,000 $345,800 plus 41% of the excess of such amount over $1,000,000 Over $1,250,000 but not over $1,500,000 $448,300 plus 43% of the excess of such amount over $1,250,000 Over $1,500,000 but not over $2,000,000 $555,800 plus 45% of the excess of such amount over $1,500,000 Over $2,000,000 $780,800 plus 45% of the excess of such amount over $2,000,000 EXHIBIT 14.6 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2012) Over 50 but not over $10,000 18% of such amount. Over $10,000 but not over $20,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $20,000 but not over $40,000 $3,800 plus 22% of the excess of such amount over $20,000 Over $40,000 but not over $60,000 $8,200 plus 24% of the excess of such amount over $40,000 $13,000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18,200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23,800 plus 30% of the excess of such amount over $100,000 Over $150,000 but not over $250,000 $38,800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70,800 plus 34% of the excess of such amount over $250,000 Over $500,000 $155.800 plus 35% of the excess of such amount over $500,000 EXHIBIT 14.7 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) Over 50 but not over $10,000 18% of such amount $1,800 plus 20% of the excess of such amount over $10,000 Over $20,000 but not over $40,000 53.800 plus 22% of the excess of such amount over $20,000 Over $40,000 but not over $60,000 $8.200 plus 24% of the excess of such amount over $40,000 Over $60,000 but not over $80,000 $13,000 plus 26% of the excess of such amount over $60.000 Over $80,000 but not over $100,000 $18,200 plus 28% of the excess of such amount over $80,000 $23,800 plus 30% of the excess of such amount over $100.000 Over $150,000 but not over $250,000 $38,800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70.800 plus 34% of the excess of such amount over $250.000 Over $500,000 but not over $750,000 $155.800 plus 37% of the excess of such amount over $500,000 Over $750,000 but not over $1,000,000 $248,300 plus 39% of the excess of such amount over $750,000 Over $1,000,000 5345.800 plus 40% of the excess of such amount over $1.000.000 ND MARTHA FRANKLIN CASE BENNY AND MAR d Martha Franklin have come to you for help with their estate plan. Benny and Martha Fran both in excellent health and three children and six NAL BACKGROUND AND INFORMATION Gartha Franklin are 55-years-old and have been happily married for 35 years. They are lent health and expect they will live well into their 90s. They live in Virginia and have hildren and six grandchildren. The Franklins plan to retire at age 65. The chart below depicts their family as of today. Benny & Martha Franklin Joc (age 34) 3 Children Jeff (age 29) 1 Child James (age 32) 2 Children Sydney (age 10) Elizabeth (age 2) Jordan (age 7) Will (age 8) Colin (age 5) Ivan (age 7) Joe and James are both married and work in the family businesses. Jeff is a lawyer and is recently divorced with custody over his daughter, Elizabeth. Joe's youngest child, Ivan, was born as a special needs child who needs full time care. Benny and Martha have a great relationship with their daughter-in-laws and consider them part of the family. Benny graduated from MIT and is an aerospace engineer. He started and owns three companies that produce components for various weapons systems for the United States Department of Defense. Joe and James both graduated from West Point Academy and spent several years in the military. They have been working for Benny in various roles for the last couple years. The three businesses are structured as C corporations and are owned entirely by Benny and Martha. The three businesses have appreciated over the last five years at an annual compound rate of growth of 10 percent. Benny expects this rate of growth to continue indefinitely. Martha majored in communications at Boston College and has been a stay-at-home mom. She now helps with the grandchildren regularly and volunteers with the Wounded Warrior Project. Education Information Benny and Martha believe strongly in education and would like their five grandchildren to all attend MIT. Ivan is not expected to attend college. The current cost of undergraduate studies at MIT is $63,000 per year. Tuition has been increasing at an average rate of seven percent and is expected to continue at that rate. Vacation Home Benny and Martha used to spend summers with friends at a home on Martha's Vin such fond memories that once they became successful, they decided to purcha Martha's Vineyard. They spend a substantial amount of time with their children and at the vacation home every summer. on Martha's Vineyard. They had u decided to purchase a home on vith their children and grandchildren Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha. The a death benefit of $2 million. Assume the replacement value of the policy is $200.000 TL is currently owned by Benny and the three boys are the beneficiaries. enny and Martha. The policy has licy is $200,000. The policy Investment Real Estate includes several pieces of commercial real estate held in separate entities The investment real estate includes several pieces of commercial real estate The value is expected to increase at an average rate of 10 percent per year. Estate Planning Documents Benny and Martha have basic wills that make optimal use of testamentary bypass marital deduction. The wills were designed to avoid all estate tax at the death of the first spouse and to make use of their lifetime exemptions. They also have durable powers of attorney for health care, advanced medical directives financial powers of attorney. Prior Gifts In 2000, Benny established a Charitable Remainder Annuity Trust and funded it with highly appreciated publicly-traded stock worth $1,000,000. Benny and Martha were the income beneficiaries and the Wounded Warrior Project was the remainder beneficiary. The trust was set up with a ten-year term. In 2009, Benny established an irrevocable trust for each of the three boys and funded each trust with $1 million. The trusts were set up in such a way as to allow the trustee of each trust to provide for the health, education, maintenance and support of the beneficiary. The trusts were established as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns age 45. The trusts were not set up as crummy trusts. The trusts name the children (born and unborn) of each of the boys as the contingent beneficiaries for each trust. In 2012, Benny gave Uncle George a gift of $1,013,000 in cash. His uncle had been inspirational when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. GOALS: PREPARE A PROPER ESTATE PLAN 1. Minimize estate taxes. Fund college education for the five grandchildren. Set up a special needs trust for Ivan's future needs. that the vacation home is a permanent family home for children and grandchil- dren. Keep 100 percent of business interests in the family. orain control of the business until retirement at which time James and Joe will take s y. over. Transfer an additional $2 million to the Wounded Warrior Project some time in the future. FINANCIAL STATEMENTS Balance Sheet ASSETS Cash/Cash Equivalents IT Checking and Savings Total Cash/Cash Equiv. $1,000,000 $1,000,000 LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities $100,000 $100,000 Invested Assets JT Marketable Securities JT Business Interests H 401(k) Plan JT Investment Real Estate Total Investments $6,000,000 6,000,000 1.250,000 3,000,000 $16,250,000 Long-Term Liabilities JT Mortgage - Primary Total Long-Term Liabilities $1,000,000 $1,000,000 Total Liabilities $1,100,000 Personal Use Assets JT Primary Residence JT Vacation Home JT Autos JT Household Furnishings H Life Insurance Total Personal Use $2,000,000 1,500,000 100,000 500,000 200,000 $4,300,000 Net Worth $20,450,000 Total Assets $21,550,000 Total Liabilities and Net Worth $21,550,000 Statement of Income and Expenses Statement of Income and Expenses Mr. and Mrs. Franklin Statement of Income and Expenses for Past Year CASH INFLOWS Totals Salaries Income $900,000 Investment Income $400,000 Total Cash Inflows $1,300,000 CASH OUTFLOWS Lifestyle Needs (includes debt repayment) $500,000 Income Taxes $400,000 Property Taxes $100,000 Homeowner's Insurance $25,000 Health Insurance $25,000 Long-term Care Insurance $25,000 Disability Insurance $25,000 Life Insurance $100,000 Total Fixed Outflows $1,200,000 Excess Cash Flow $100,000 CASE ASSUMPTIONS 1. They want to make maximum use of their annual exclusions. 2. They want to maintain total control over their business interests until retirement. 3. They are willing to fully utilize their gift and estate applicable credits any time to accom- plish the best plan. 4. The long-term AFR is 3%. 5. Any minority transfer of business interests will receive a 25% discount. 6. Their life expectancies for GRAT or QPRT purposes are as follows: Him Her 95% 5 years 5 years 75% 20 years 25 years 50% 30 years 35 years 25% 35 years 40 years 7. Their principal residence and the vacation home are appreciating at 10% per year and are expected to continue to grow at that rate. DIRECTIONS FOR THE CASE 1. What are the steps Benny and Martha should take immediately and over the long-term to reduce their gross estate and achieve their goals. Be specific and quantify the impact of each recommendation. Prepare the gift tax returns for 2009 and 2012, as well as for the current year, based on rec- ommendations. The applicable credit amount for gift tax purposes was $345,800 in 2009, $1,772,800 in 2012, and $4,417,800 in 2018. The annual exclusion was $13,000 in 2009 and 2012, and is $15,000 in 2018. Prepare an estate tax return for Benny as of the end of the current year after any recom- mended transfers. Assume he dies on December 31 of the current year. Assume the co bined last medical and funeral costs are $100,000 and the estate administration $150,000. CASE APPENDIX EXHIBIT 14.5 Over 50 but not over $10,000 Over $10,000 but not over $20,000 Over $20,000 but not over $40,000 Over $40,000 but not over $60,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) 18% of such amount. $1,800 plus 20% of the excess of such amount over $10,000 $3,800 plus 22% of the excess of such amount over $20,000 $8,200 plus 24% of the excess of such amount over $40,000 Over $60,000 bur not over $80,000 $13,000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18,200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23,800 plus 30% of the excess of such amount over $100,000 Over $150,000 but not over $250.000 $38,800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70,800 plus 34% of the excess of such amount over $250,000 Over $500,000 but not over $750,000 $155,800 plus 37% of the excess of such amount over $500,000 Over $750,000 but not over $1,000,000 $248,300 plus 39% of the excess of such amount over $750,000 Over $1,000,000 but not over $1,250,000 $345,800 plus 41% of the excess of such amount over $1,000,000 Over $1,250,000 but not over $1,500,000 $448,300 plus 43% of the excess of such amount over $1,250,000 Over $1,500,000 but not over $2,000,000 $555,800 plus 45% of the excess of such amount over $1,500,000 Over $2,000,000 $780,800 plus 45% of the excess of such amount over $2,000,000 EXHIBIT 14.6 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2012) Over 50 but not over $10,000 18% of such amount. Over $10,000 but not over $20,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $20,000 but not over $40,000 $3,800 plus 22% of the excess of such amount over $20,000 Over $40,000 but not over $60,000 $8,200 plus 24% of the excess of such amount over $40,000 $13,000 plus 26% of the excess of such amount over $60,000 Over $80,000 but not over $100,000 $18,200 plus 28% of the excess of such amount over $80,000 Over $100,000 but not over $150,000 $23,800 plus 30% of the excess of such amount over $100,000 Over $150,000 but not over $250,000 $38,800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70,800 plus 34% of the excess of such amount over $250,000 Over $500,000 $155.800 plus 35% of the excess of such amount over $500,000 EXHIBIT 14.7 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) Over 50 but not over $10,000 18% of such amount $1,800 plus 20% of the excess of such amount over $10,000 Over $20,000 but not over $40,000 53.800 plus 22% of the excess of such amount over $20,000 Over $40,000 but not over $60,000 $8.200 plus 24% of the excess of such amount over $40,000 Over $60,000 but not over $80,000 $13,000 plus 26% of the excess of such amount over $60.000 Over $80,000 but not over $100,000 $18,200 plus 28% of the excess of such amount over $80,000 $23,800 plus 30% of the excess of such amount over $100.000 Over $150,000 but not over $250,000 $38,800 plus 32% of the excess of such amount over $150,000 Over $250,000 but not over $500,000 $70.800 plus 34% of the excess of such amount over $250.000 Over $500,000 but not over $750,000 $155.800 plus 37% of the excess of such amount over $500,000 Over $750,000 but not over $1,000,000 $248,300 plus 39% of the excess of such amount over $750,000 Over $1,000,000 5345.800 plus 40% of the excess of such amount over $1.000.000