The Dion Case

An Estate Planning Mini-case

Marcel and Clio Dion are taking steps to begin evaluating their estate planning

situation. Marcel is 60 years old. Clio is 53 years old. They have two children, ages

13 and 18. Marcel is a successful executive with a Fortune 500 company, and Clio has

achieved success as a cosmetics home sales trainer.

Currently, their wills state that if either Marcel or Clio were to pass away, the surviving

spouse would inherit everything. Both Marcel and Clio value their privacy, but they

have not established a trust at this time. They have an interest in providing charitable

support to their church, but they have not made any sizable contributions. Table VI.20

summarizes their asset, liability, and estate expense situation.

Table VI.20 Asset, Liability, and Expense Situation for the Dion Family

Assets Value Ownership

Checking account $26,000 JTWROS

Savings account $20,000 JTWROS

Money market account $90,000 JTWROS

Other monetary assets $0 JTWROS

EE/I bonds $100,000 JTWROS

Mutual funds (basis less than fair market value) $1,720,000 JTWROS

Other investment assets $250,000 JTWROS

Primary residence $700,000 JTWROS

Other housing assets (vacation home) $240,000 JTWROS

Vehicles $86,000 JTWROS

Personal property $134,000 JTWROS

Retirement assets (e.g., 401(k) and IRA) $768,000 Marcel

Retirement assets (e.g., 401(k) and IRA) $345,000 Clio

Other assets $48,000 Jointly held but not titled

Life insurance (variable universal life)* $1,500,000 Marcel

Life insurance (universal life) $250,000 Clio

Liabilities Value Ownership

Mortgage on vacation home $112,000 Joint

Debts $86,000 Joint

Expenses Costs

Funeral and final expenses assumed the same for both $25,000

*Clio is the beneficiary of Marcels policy, and Marcel is the beneficiary of Clios policy.

Case Questions

1. Identify the statement(s) below that correctly characterize(s) property interests held by Marcel

that, at death, pass by operation of law.

I. If the property passes according to the operation of law, the property avoids probate.

II. If the property passes according to the operation of law, it will not be included in the

decedents gross estate.

III. Property that passes by operation of law cannot qualify for the marital deduction.

IV. The titling on the instrument determines who shall receive the property.

a. I only

b. I, II, and III only

c. I and IV only

d. I, II, and IV only

e. II and III only

2. As Marcel and Clio think about the value of their adjusted gross estate, they are unsure which

assets and expenses might be deductible. Which of the following is a deduction from the gross

estate used to calculate the adjusted gross estate?

a. Costs associated with maintaining estate assets.

b. Nontaxable gifts made within three years.

c. Federal estate tax marital deduction.

d. Property inherited from others.

3. Currently, the Dions own their personal residence as JTWROS. If instead they owned the property

as a tenancy by the entirety, how could this form of ownership be terminated?

I. Death, whereby the survivor takes the property.

II. Mutual agreement.

III. Divorce, which converts the estate into a tenancy in common or a joint tenancy.

IV. Severance, whereby one spouse transfers his or her interest to a third party without

the consent of the other spouse.

a. IV only

b. I and III only

c. II and IV only

d. I, II, and III only

e. I, II, III, and IV

4. One of Marcels primary financial planning goals includes making lifetime gifts to his children.

He would like to do this to help his children and to reduce his potential estate tax liability. If

he moves forward with his plan to maximize the value of the strategy, he should make gifts of

property that

I. are expected to depreciate in the future.

II. are expected to appreciate in the future.

III. have already depreciated significantly.

a. I only

b. II only

c. III only

d. I and III only

e. I, II, and III

5. What is the value of Marcels adjusted gross estate if he were to pass away today and before Clio?

a. $2,475,000

b. $3,225,000

c. $3,851,000

d. $3,975,000

6. There are several weaknesses associated with the Dions current estate plan. Which of the

following are the significant weaknesses within their plan?

I. Failure to utilize the marital deduction.

II. Failure to maximize the unified credit.

III. Failure to utilize charitable gift strategies to reduce the taxable estate.

IV. Failure to avoid probate.

a. I and III only

b. II and IV only

c. I, II, and III only

d. II, III, and IV only

e. I, II, III, and IV

7. In view of combined estate values for Marcel and Clio, and knowing that one of their planning

objectives is the reduction of estate taxes, which of the following estate planning techniques

might be appropriate

I. Placing the life insurance policies in an irrevocable trust.

II. Establishing a revocable living trust and funding it by using the unlimited marital

deduction and the full unified credit.

III. Making use of the gift tax annual exclusion.

IV. Establishing a qualified terminable interest property (QTIP) trust to pass property to

their children.

a. II and III only

b. I and III only

c. II and IV only

d. II, III, and IV only

e. I, II, III, and IV

8. Calculate Clios taxable estate assuming that Marcel passes away first, followed closely by Clios

death.

a. $6,029,000

b. $6,484,000

c. $7,860,000

d. $7,736,000

e. $7,984,000

9. The Dions are considering making a sizable charitable gift to their local university using assets

held in their mutual fund accounts. The primary purpose of their gift strategy is to reduce their

taxable estate while providing a benefit for the university. Which of the following strategies will

maximize the effectiveness of this estate planning strategy?

a. Give the mutual funds first to their oldest child, who can then sell them with a stepped-up

basis and use the proceeds as a donation to the university.

b. Donate the mutual funds directly to the university and allow the university to sell the funds.

c. Sell the mutual funds first and then donate the cash proceeds to the university.

d. Transfer the mutual funds to a noncharitable irrevocable trust and then donate the trust

income to the university.

10. The local university has approached the Dions about making a charitable contribution. After

discussing the possibility of making a donation, Marcel and Clio have decided that they would

be willing to make the donation if they could receive an immediate tax deduction and income

based on a fixed percentage of the amount donated (valued annually). They would also like

to have the ability to increase their donation amount in future years. Which of the following

charitable giving alternatives best serves the Dions desires?

a. A charitable remainder unitrust.

b. A charitable remainder annuity trust.

c. A pooled income fund.

d. A grantor retained annuity trust,