Read and review Benny and Martha Franklin Case to prepare a report to answer the following questions: 1- What are the steps Benny and Martha should take immediately and over the long-run to reduce their gross estate and achieve their goals. Be specific and quantify the impact of each recommendations.
2- Prepare the gift tax returns for 2009 and 2012, as well as for the current year, based on recommendations. 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.
3- Prepare an estate tax return for Benny as of the end of the current year after any recommended transfers. Assume he dies on December 31 of the current year. Assuming the combined last medical and funeral costs are $100,000 and the estate administration cost is $150,000.
This assignment is a basic estate plan worth 160 points. Submit your plan in a PDF file online by Sunday midnight
OALS: PREPAR . PREPARE A PROPER ESTATE PLAN 1. Minimize estate taxes. Fund college education for the five grandchal up a special needs trust for Ivan's future needs. 4. Ensure that the vacation ho that the vacation home is a permanent family home for children and grandchil- dren. 5. Keep 100 percent of business interests in the family. Maintain control of the business until retirement at which time James and Joe will take over. 7 Transfer an additional $2 million to the Wounded Warrior Project some time in the future. INANCIAL STATEMENTS Falance Sheet ASSETS Cash/Cash Equivalents JT Checking and Savings Total Cash/Cash Equiv. LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities $1,000,000 $1,000,000 $100,000 $100,000 Invested Assets JT Marketable Securities JT Business Interests H 401(k) Plan JT Investment Real Estate Total Investments $1,000,000 $1,000,000 $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 $1,100,000 Total Liabilities $20,450,000 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 $21,550,000 Total Liabilities and Net Worth $21,550,000 Total Assets Martha's Vineyard. They had 1 they decided to purchase a home se a home on Vacation Home Benny and Martha used to spend summers with friends at a home on such fond memories that once they became successful, they decid, Martha's Vineyard. They spend a substantial amount of time with thei at the vacation home every summer. eir children and grandchildren Martha. The policy has Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and a death benefit of $2 million. Assume the replacement value of the policy is $200 is currently owned by Benny and the three boys are the beneficiaries. ve of the policy is $200,000. The police cial real estate held in separate entities. Investment Real Estate The investment real estate includes several pieces of commercial real estate held in s 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 trusts and the 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 and 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 ago The trusts were not set up as crummy trusts. The trusts name the children (born and un 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 inspa when Benny was a kid and has fallen on hard times. d been inspirational Martha has not made any taxable gifts in her past. 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 $400,000 $1,300,000 Investment Income Total Cash Inflows CASH OUTFLOWS Lifestyle Needs (includes debt repayment) Income Taxes Property Taxes Homeowner's Insurance Health Insurance Long-term Care Insurance Disability Insurance $500,000 $400,000 $100,000 $25,000 $25,000 $25,000 $25,000 $100,000 Life Insurance Total Fixed Outflows Excess Cash Flow $1,200,000 $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 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 reduce their gross estate and achieve their goals. Be specific and quantify the mipa each recommendation. Prepare the gift tax returns for 2009 and 2012, as well as for the current year ommendations. The applicable credit amount for gift tax purposes was $1,772,800 in 2012, and $4,417,800 in 2018. The annual exclusion was and 2012, and is $15,000 in 2018. 3. Prepare an estate tax return for Benny as of the end of the current year a mended transfers. Assume he dies on December 31 of the current year bined last medical and funeral costs are $100,000 and the esta $150,000. or the current year, based on rec- ses was $345,800 in 2009, 1 exclusion was $13,000 in 2009 Frent year after any recom- urrent year. Assume the com- the estate administration cost is AX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) Over $0 but not over $10,000 Over $10,000 but not over $20,000 18% of such amount. Over $20,000 but not over $40,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $40,000 but not over $60,000 $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 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 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 er $1.500,000 but not over $2,000,000 $555,800 plus 45% of the excess of such amount over $1,500,000 $780,800 plus 45% of the excess of such amount over $2,000,000 Over $2,000,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2012) Over $0 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 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 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 Over $0 but not over $10,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) Over $10,000 but not over $20,000 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 $13,000 plus 26% of the excess of such amount over $60,000 $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 $38,800 plus 32% of the excess of such amount over $150,000 $70,800 plus 34% of the excess of such amount over $250,000 $155,800 plus 37% of the excess of such amount over $500,000 $248,300 plus 39% of the excess of such amount over $750,000 $345,800 plus 40% of the excess of such amount over $1,000,000 Over $20,000 but not over $40,000 Over $40,000 but not over $60,000 Over $60,000 but not over $80,000 ver $80,000 but not over $100,000 $100,000 but not over $150,000 Ver $150,000 but not over $250,000 f $250,000 but not over $500,000 F$500,000 but not over $750,000 50,000 but not over $1,000,000 Over $100,000 but no Over $250,000 Over $500,000 Over $750,000 but Over $1,000,000 on Martha's Vineyard. They had decided to purchase a home on their children and grandchildren Vacation Home Benny and Martha used to spend summers with friends at a home on Mar such fond memories that once they became successful, they decided Martha's Vineyard. They spend a substantial amount of time with their chil at the vacation home every summer. d Martha. The policy has $200,000. The policy Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha a death benefit of $2 million. Assume the replacement value of the policy is $200.000 is currently owned by Benny and the three boys are the beneficiaries. Investment Real Estate The investment real estate includes several pieces of commercial real estate held in separate enti 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 trusts and the 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 and 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 esta as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns The trusts were not set up as crummy trusts. The trusts name the children (born and uncom cach of the boys as the contingent beneficiaries for cach trust. In 2012, Benny gave Uncle George a pift of $1,013,000 in cash. His uncle had been inspire when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. char GOALS: PREPA IS: 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 ire that the vacation home is a permanent family home for children and grandchil- dren. 5 Keep 100 percent of business interests in the family. Maintain control of the business until retirement at which time James and Joc will take over. 7. Transfer an additional $2 million to the Wounded Warrior Project some time in the future. 4. Ensure that the vacation FINANCIAL STATEMENTS Balance Sheet ASSETS Cash/Cash Equivalents JT Checking and Savings Total Cash/Cash Equiv. LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities $1,000,000 $1,000,000 $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 $1,100,000 Tecal Liabilities Personal Use Assets JT Primary Residence JT Vacation Home $20.650.000 $2.000.000 1.500.000 100.000 500.000 200.000 $4.300,000 Net Worth JT Autos $21.550.000 JT Household Furnishings H Life Insurance Total Personal Us Total Liabilities and Net Worth $21.550,000 Total Assets Statement of Income and Expenses Totals Statement of Income and Expenses Mr. and Mrs. Franklin Statement of Income and Expenses for Past Year CASH INFLOWS Salaries $900,000 $400,000 $1,300,000 Income Investment Income Total Cash Inflows CASH OUTFLOWS Lifestyle Needs (includes debt repayment) Income Taxes Property Taxes Homeowner's Insurance Health Insurance Long-term Care Insurance Disability Insurance Life Insurance Total Fixed Outflows Excess Cash Flow $500,000 $400,000 $100,000 $25.000 $25.000 $25.000 $25,000 $100,000 $1.200.000 $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 retiremen 3. They are willing to fully utilize their gift and estate applicable credits any time to a 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- reduce their gross estate and achieve their goals. Be specific and quantity the impa each recommendation. 2. Prepare the gift tax returns for 2009 and 2012, as well as for the current year ommendations. The applicable credit amount for gift tax purposes was 343.0 2, as well as for the current year, based on re $1,772,800 in 2012 and $4.417.800 in 2018 The annual exclusion was and 2012, and is $15,000 in 2018. Prepare an estate tax return for Benny as of the end of the current year after mended transfers. Assume he dies on December 31 of the current year. bined last medical and funeral costs are $100,000 and the estate admin $150,000. thet Idrer incle poses was $345.800 in 2009, xclusion was $13,000 in 2009 current year after any room Frent year. Assume the com- estate administration 556 CHAPTER 14: BASIC ESTATE PUAN Chapter EXHIBIT 14.5 AX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) 50 but not over $10,000 Over $10,000 but not over $20.000 18% of such amount Over $20,000 but not over $40,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $40,000 but not over $60,000 $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 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 ascess of such amount over $80,000 Over $100,000 but not over $150,000 $23.800 plus 30% of the scess 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 ccess of such amount over $500.000 Over $750,000 but not over $1.000.000 $248,300 plus 39% of the cucess 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 sach 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 $780.800 plus 45% of the excess of such amount over $2.000.000 Over $2,000,000 EXHIBIT 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 Over $60,000 but not over $80,000 $13.000 plus 26% of the access 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 access 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 5500,000 $155,800 plus 35% of the excess of such amount over $500.000 th EXHIBIT and of each trusts eneficia (born Oher SO DUE DOL OVER 10.000 Over $10.000 but not over $20,000 Over $20.000 but not over $40,000 D 40.butover $60,000 Sher O but n ow $80,000 ther . but not over $100,000 her $100.000 $150.000 Dhe $150.000 but not over $250.000 he $250.000 $500,000 900.000 $750,000 750.000 b o er $1,000,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) 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 $10,000 $13.000 plus 26% of the new of such mouse over $60,000 $18.200 plus 28% of the cow of such amount over $80,000 $23.800 plus 30% of the cow of such amount over $100.000 $38.800 plus 32% of che ce of such m at over $150,000 $70.500 plus 34% of the c o uch over $250,000 5155.800 plus 37 of the ce of such a n over $500.000 $248.300 plus 39% of the c afech amount over $750,000 3345.800 plus 40% of the c o uch amount over $1.000.000 had bee D . DOO OALS: PREPAR . PREPARE A PROPER ESTATE PLAN 1. Minimize estate taxes. Fund college education for the five grandchal up a special needs trust for Ivan's future needs. 4. Ensure that the vacation ho that the vacation home is a permanent family home for children and grandchil- dren. 5. Keep 100 percent of business interests in the family. Maintain control of the business until retirement at which time James and Joe will take over. 7 Transfer an additional $2 million to the Wounded Warrior Project some time in the future. INANCIAL STATEMENTS Falance Sheet ASSETS Cash/Cash Equivalents JT Checking and Savings Total Cash/Cash Equiv. LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities $1,000,000 $1,000,000 $100,000 $100,000 Invested Assets JT Marketable Securities JT Business Interests H 401(k) Plan JT Investment Real Estate Total Investments $1,000,000 $1,000,000 $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 $1,100,000 Total Liabilities $20,450,000 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 $21,550,000 Total Liabilities and Net Worth $21,550,000 Total Assets Martha's Vineyard. They had 1 they decided to purchase a home se a home on Vacation Home Benny and Martha used to spend summers with friends at a home on such fond memories that once they became successful, they decid, Martha's Vineyard. They spend a substantial amount of time with thei at the vacation home every summer. eir children and grandchildren Martha. The policy has Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and a death benefit of $2 million. Assume the replacement value of the policy is $200 is currently owned by Benny and the three boys are the beneficiaries. ve of the policy is $200,000. The police cial real estate held in separate entities. Investment Real Estate The investment real estate includes several pieces of commercial real estate held in s 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 trusts and the 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 and 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 ago The trusts were not set up as crummy trusts. The trusts name the children (born and un 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 inspa when Benny was a kid and has fallen on hard times. d been inspirational Martha has not made any taxable gifts in her past. 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 $400,000 $1,300,000 Investment Income Total Cash Inflows CASH OUTFLOWS Lifestyle Needs (includes debt repayment) Income Taxes Property Taxes Homeowner's Insurance Health Insurance Long-term Care Insurance Disability Insurance $500,000 $400,000 $100,000 $25,000 $25,000 $25,000 $25,000 $100,000 Life Insurance Total Fixed Outflows Excess Cash Flow $1,200,000 $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 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 reduce their gross estate and achieve their goals. Be specific and quantify the mipa each recommendation. Prepare the gift tax returns for 2009 and 2012, as well as for the current year ommendations. The applicable credit amount for gift tax purposes was $1,772,800 in 2012, and $4,417,800 in 2018. The annual exclusion was and 2012, and is $15,000 in 2018. 3. Prepare an estate tax return for Benny as of the end of the current year a mended transfers. Assume he dies on December 31 of the current year bined last medical and funeral costs are $100,000 and the esta $150,000. or the current year, based on rec- ses was $345,800 in 2009, 1 exclusion was $13,000 in 2009 Frent year after any recom- urrent year. Assume the com- the estate administration cost is AX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) Over $0 but not over $10,000 Over $10,000 but not over $20,000 18% of such amount. Over $20,000 but not over $40,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $40,000 but not over $60,000 $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 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 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 er $1.500,000 but not over $2,000,000 $555,800 plus 45% of the excess of such amount over $1,500,000 $780,800 plus 45% of the excess of such amount over $2,000,000 Over $2,000,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2012) Over $0 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 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 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 Over $0 but not over $10,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) Over $10,000 but not over $20,000 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 $13,000 plus 26% of the excess of such amount over $60,000 $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 $38,800 plus 32% of the excess of such amount over $150,000 $70,800 plus 34% of the excess of such amount over $250,000 $155,800 plus 37% of the excess of such amount over $500,000 $248,300 plus 39% of the excess of such amount over $750,000 $345,800 plus 40% of the excess of such amount over $1,000,000 Over $20,000 but not over $40,000 Over $40,000 but not over $60,000 Over $60,000 but not over $80,000 ver $80,000 but not over $100,000 $100,000 but not over $150,000 Ver $150,000 but not over $250,000 f $250,000 but not over $500,000 F$500,000 but not over $750,000 50,000 but not over $1,000,000 Over $100,000 but no Over $250,000 Over $500,000 Over $750,000 but Over $1,000,000 on Martha's Vineyard. They had decided to purchase a home on their children and grandchildren Vacation Home Benny and Martha used to spend summers with friends at a home on Mar such fond memories that once they became successful, they decided Martha's Vineyard. They spend a substantial amount of time with their chil at the vacation home every summer. d Martha. The policy has $200,000. The policy Life Insurance The life insurance policy is a second-to-die policy on the lives of Benny and Martha a death benefit of $2 million. Assume the replacement value of the policy is $200.000 is currently owned by Benny and the three boys are the beneficiaries. Investment Real Estate The investment real estate includes several pieces of commercial real estate held in separate enti 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 trusts and the 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 and 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 esta as simple trusts. The trustee is directed to not terminate the trust until the beneficiary turns The trusts were not set up as crummy trusts. The trusts name the children (born and uncom cach of the boys as the contingent beneficiaries for cach trust. In 2012, Benny gave Uncle George a pift of $1,013,000 in cash. His uncle had been inspire when Benny was a kid and has fallen on hard times. Martha has not made any taxable gifts in her past. char GOALS: PREPA IS: 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 ire that the vacation home is a permanent family home for children and grandchil- dren. 5 Keep 100 percent of business interests in the family. Maintain control of the business until retirement at which time James and Joc will take over. 7. Transfer an additional $2 million to the Wounded Warrior Project some time in the future. 4. Ensure that the vacation FINANCIAL STATEMENTS Balance Sheet ASSETS Cash/Cash Equivalents JT Checking and Savings Total Cash/Cash Equiv. LIABILITIES AND NET WORTH Liabilities Current Liabilities JT Credit Card Total Current Liabilities $1,000,000 $1,000,000 $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 $1,100,000 Tecal Liabilities Personal Use Assets JT Primary Residence JT Vacation Home $20.650.000 $2.000.000 1.500.000 100.000 500.000 200.000 $4.300,000 Net Worth JT Autos $21.550.000 JT Household Furnishings H Life Insurance Total Personal Us Total Liabilities and Net Worth $21.550,000 Total Assets Statement of Income and Expenses Totals Statement of Income and Expenses Mr. and Mrs. Franklin Statement of Income and Expenses for Past Year CASH INFLOWS Salaries $900,000 $400,000 $1,300,000 Income Investment Income Total Cash Inflows CASH OUTFLOWS Lifestyle Needs (includes debt repayment) Income Taxes Property Taxes Homeowner's Insurance Health Insurance Long-term Care Insurance Disability Insurance Life Insurance Total Fixed Outflows Excess Cash Flow $500,000 $400,000 $100,000 $25.000 $25.000 $25.000 $25,000 $100,000 $1.200.000 $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 retiremen 3. They are willing to fully utilize their gift and estate applicable credits any time to a 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- reduce their gross estate and achieve their goals. Be specific and quantity the impa each recommendation. 2. Prepare the gift tax returns for 2009 and 2012, as well as for the current year ommendations. The applicable credit amount for gift tax purposes was 343.0 2, as well as for the current year, based on re $1,772,800 in 2012 and $4.417.800 in 2018 The annual exclusion was and 2012, and is $15,000 in 2018. Prepare an estate tax return for Benny as of the end of the current year after mended transfers. Assume he dies on December 31 of the current year. bined last medical and funeral costs are $100,000 and the estate admin $150,000. thet Idrer incle poses was $345.800 in 2009, xclusion was $13,000 in 2009 current year after any room Frent year. Assume the com- estate administration 556 CHAPTER 14: BASIC ESTATE PUAN Chapter EXHIBIT 14.5 AX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2009) 50 but not over $10,000 Over $10,000 but not over $20.000 18% of such amount Over $20,000 but not over $40,000 $1,800 plus 20% of the excess of such amount over $10,000 Over $40,000 but not over $60,000 $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 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 ascess of such amount over $80,000 Over $100,000 but not over $150,000 $23.800 plus 30% of the scess 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 ccess of such amount over $500.000 Over $750,000 but not over $1.000.000 $248,300 plus 39% of the cucess 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 sach 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 $780.800 plus 45% of the excess of such amount over $2.000.000 Over $2,000,000 EXHIBIT 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 Over $60,000 but not over $80,000 $13.000 plus 26% of the access 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 access 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 5500,000 $155,800 plus 35% of the excess of such amount over $500.000 th EXHIBIT and of each trusts eneficia (born Oher SO DUE DOL OVER 10.000 Over $10.000 but not over $20,000 Over $20.000 but not over $40,000 D 40.butover $60,000 Sher O but n ow $80,000 ther . but not over $100,000 her $100.000 $150.000 Dhe $150.000 but not over $250.000 he $250.000 $500,000 900.000 $750,000 750.000 b o er $1,000,000 TAX RATE SCHEDULE FOR TAXABLE GIFTS AND ESTATES (2018) 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 $10,000 $13.000 plus 26% of the new of such mouse over $60,000 $18.200 plus 28% of the cow of such amount over $80,000 $23.800 plus 30% of the cow of such amount over $100.000 $38.800 plus 32% of che ce of such m at over $150,000 $70.500 plus 34% of the c o uch over $250,000 5155.800 plus 37 of the ce of such a n over $500.000 $248.300 plus 39% of the c afech amount over $750,000 3345.800 plus 40% of the c o uch amount over $1.000.000 had bee D . DOO
