Read the case carefully before beginning the exam, then answer the questions relating to the fact pattern. Take time before the exam to consider the questions you will likely be asked in an Estate's case. Consider preparing some preliminary calculations in advance of starting the exam. Additional facts will be provided in some of the questions as you proceed through the exam, these facts apply only to the related question, otherwise use the original case facts.

BORELLI CASE

PERSONAL INFORMATION AND BACKGROUND

Louie and Kathleen Borelli have been married for over $50$ years and live on a ranch outside of Reno, Nevada. They have enjoyed a comfortable retirement for $20$ years, living off the wealth created through Louie$$s company, Borelli Casinos.

Sadly, last month, Louie was diagnosed with a terminal illness and is only expected to live another $12$ to $18$ months. Louie and Kathleen feel a sense of urgency around planning for the distribution of their estate to ensure that they minimize estate taxes and maximize the value of what will be left to their heirs.

Louie and Kathleen have two children, Jerry and Sal, who have continued their father$$s legacy by working in the family business. Jerry serves as the CEO of the publicly traded organization, while Sal is a floor manager at the property in Las Vegas. Jerry currently lives with his girlfriend Irene in the penthouse suite at the casino in Reno. He does not have any children. Sal and his wife reside in Las Vegas and have a $22-$year old daughter named Emily.

Last year, Louie confessed to Kathleen that about $20$ years ago, he had an affair with another woman that resulted in the birth of a daughter named Ava. Ava works as a cocktail waitress in one of the company$$s casinos, and Louie has been secretly sending money to help with her financial situation.

Name Relationship Age Occupation Health Comments

Louie Husband $78$ Retired Terminally Ill

Kathleen Wife $75$ Retired Excellent

Jerry Son $50$ CEO, Borellis Casinos Excellent

Sal Son $47$ Casino Floor Manager Excellent Married, one child

Emily Granddaughter $($Sal$\text{'}$s Child$)22$ Just graduated from college Excellent Getting married this summer

Ava Non$-$marital child $($Louie$\text{'}$s child with another woman$)20$ Cocktail waitress Excellent Relies on Louie for support

GOALS AND OBJECTIVES

$1.$ Louie and Kathleen want to ensure the efficient transfer of their estate to their heirs.

$2.$ Louie wants to make sure that Ava is not disinherited at his death.

$3.$ Louie and Kathleen would like to give $$20,000$ in cash to Emily to help fund her wedding.

$4.$ Louie and Kathleen would like to give their shares in XYZ Company to their neighbor whose child was recently killed in a car accident.

$5.$ Louie and Kathleen would like to continue to support the nonprofit research organization that is looking for a cure for Louie$$s disease, while maximizing their income tax deduction. They have set aside $$175,000$ in a savings account for this purpose.

INCOME TAX INFORMATION

Louie and Kathleen had an adjusted gross income of $$185,000$ last year and anticipate it will be the same this year. They made a $$100,000$ cash charitable contribution this year to the nonprofit research organization trying to find a cure to Louie$$s disease. They are in the $28\%$ marginal federal tax bracket for the current year.

ESTATE PLANNING INFORMATION

Louie and Kathleen live in a community$-$property state. Louie and Kathleen$$s current wills leave all their assets to each other at their deaths. Jerry is the named executor in both wills. After Louie was diagnosed as terminally ill, he and Kathleen met with their attorney to discuss drafting new estate planning documents. The attorney has proposed that Louie execute a will in which his entire estate will pass to a testamentary marital trust with a QTIP election. The income from the trust would be paid annually to Kathleen, but she would be restricted to withdrawing principal only for her health, maintenance, and support.

At Kathleen$$s death, the assets would pass equally to Jerry, Sal, and Ava, per stirpes. The terms of the trust do not give Kathleen the right to change the beneficiaries, but she can direct a different allocation of assets among the beneficiaries at her death.

The attorney has also recommended that while Louie is still in good mental condition, he and Kathleen both execute advance medical directives and powers of attorney for property and health care. Louie would like to have sole responsibility to take care of his finances and medical decisions until he is incapacitated. Louie wanted to make things as easy as possible at his death for Kathleen and Jerry so he prepaid his funeral expenses.

TRUST INFORMATION

Four years ago, Louie and Kathleen established a trust $($called the children and grandchildren$$s trust$)$ for the benefit of Jerry, Sal, and Emily. The trust must distribute income to Jerry and Sal during their lifetimes, with the remainder to transfer outright to Emily at their deaths. Louie and Kathleen transferre