Strategies to minimize estate tax. James and Susan Wagner have assets with fair market values of $12,700,000 and $4,800,000, respectively. James has been diagnosed with a terminal illness and is expected to pass away within the current year. James wants to minimize his estate taxes, and any appropriate planning should consider the following factors:

a) James Wagner has debts of $210,000 against the assets in his estate.

b) It is estimated that administrative and funeral expenses will be $25,000 each for James and Susan.

c) Susan wanted to make contributions of $4,000,000 to charity during her remaining life expectancy. It is estimated that Susan would be able to live comfortably for the balance of her life.

d) Assume that Susan will live for three years after the year of her husbands death.

e) It is anticipated that at the time of Susans death her estate would have appreciated by $150,000 per year for three years.

f) Neither James nor Susan has made any gifts during the current year.

g) The couple has two children and three grandchildren. One of the grandchildren is attending the University of Wisconsin and is expected to graduate in two years. Annual tuition costs are $25,000 per year and $50,000 will be paid directly to the university.

h) James has agreed to make a $200,000 charitable contribution to the Sierra Club out of his estate.

i) If any trusts are created, the income from the trust will benefit the surviving spouse, and any corpus will ultimately pass to the children.

Required: Develop an estate plan for the Wagners that would minimize estate taxes and incorporate the above factors. The unified transfer tax rates and exclusion amounts set forth in the text should be used. Assume that annual nontaxable gifts up to $14,000 per donor will be made to all children and grandchildren to whatever extent possible.

Tax Table Provided in Book:

Exhibit 20-1: Unified Transfer Tax Rate Schedule for the Year 2014

A	B	C	D
Taxable Amount Over	Taxable Amount Not Over	Tax on Amount in Column A	Rate of Tax on Excess Over Amount in Column A
$0	$10,000	$0	18%
10,000	20,000	1,800	20%
20,000	40,000	3,800	22%
40,000	60,000	8,200	24%
60,000	80,000	13,000	26%
80,000	100,000	18,200	28%
100,000	150,000	23,800	30%
150,000	250,000	38,800	32%
250,000	500,000	70,800	34%
500,000	750,000	155,800	37%
750,000	1,000,000	248,300	39%
1,000,000	N/A	345,800	40%