This critical thinking case involves a widower who has requested your advice about a somewhat complicated matter. Use the grading rubric to be sure that you are following a critical thinking approach to this problem. There are three aspects to critical thinking: problem identification, analysis of options, and conclusion/recommendation. Your response will be graded on the accuracy of your answers, but also on your critical thinking and analysis of this case and on your ability to understand the problem, to identify options, and to prepare a recommendation. A rubric is attached to this folder that will be used for grading. Read the information carefully and explore options. Prepare your analysis as of November 25, 2021.

Henry is 87 years old and a widower. He lost his wife a number of years ago due to illness, and he has not remarried nor does he plan to do so. He has a daughter and two grandchildren.

Over the years Henry has saved money and invested wisely. He has approximately $1,500,000 in bank accounts and CDs and $7,500,000 of securities in his investment portfolio. A schedule of his investments is below. He has a good pension that covers more than his monthly living expenses and includes full health coverage (Medicare and a Medicare supplement); he has long term care insurance coverage; and he lives in his home which is valued at $1,750,000 and has no mortgage. Henry is in a 25% marginal tax bracket.

Henry lives a simple life and does not expect to need to use any of his investments for living expenses. One of his two grandchildren is just starting college, and the other will be starting in the next several years. He would like to give them each $100,000 to help with college costs. He also has been a member of his church for many years and would like to give the church $100,000.

Henry does not want to leave these gifts through his estate when he passes on because he would like to see his money put to good use while he is alive. He is not sure about tax issues and has come to you for advice about any tax issues related to these planned gifts. A portion of his investment portfolio as of Aug. 31 of the current year is shown below.

Write a response to Henry. Recap the problem or challenge that is present, identify options and alternatives to address the problem, and then write a conclusion in which you identify and support your recommendation. He would like you to mail a written response so that he can read it and think about any questions before you meet in person, so your response should be well organized, clear, and professionally written. Support your work by reference to the text or other relevant documents.

Be sure to address any tax consequences for Henry, Henrys estate, and the grandchildren in your analysis (e.g. capital gain income, itemized deductions, inclusion in the grandchildrens income, gift taxes owed). Note that the grandchildrens current income from parttime jobs is under $5,000 per year and they will sell any securities that they receive in order to pay for college.

Make a recommendation to Henry to explain to him how he should cover his planned gifts and donations. Provide specific instructions for each of the grandchildren and for his church (three sets of recommendations). If you recommend gifting or donating securities, identify the specific securities to be gifted or donated and the party that will receive them. Also, be clear on whether the securities will be gifted or donated. If you recommend that Henry sells securities to make any gifts, identify the specific securities to be sold. In all cases, remember to address the

tax consequences to Henry. Note that Henry does not want to reduce his bank or CD account balances, so any gifts or donations must come through his securities portfolio.

Date Purchased Current Market Value Cost Basis Other Information Security Alpha Motors common stock, 5,000 shares 1965 $ 10,000 $5,000,000 was a great investment! Bear Real Estate Holdings, LP 2008 125,000 partnership, passive activity, 250,000 suspended loss carryforwards = 25,000 50,000 lots of future potential (hopefully) 220,000 tax exempt income 2010 200,000 2005 200,000 7/1/2021 300,000 360,000 stable market value Battery Research, Inc., 2,000 shares City of Golden, CO general obligation bonds, 3%, due 2025 JM Smucker common stock, 2,000 shares Cisco Systems common stock, 2,000 shares IL Finance Authority, Advocate Health Systems bonds, 5% due 8/1/24, $200,000 face TOTALS 8/1/2021 400,000 440,000 stable market value 12/18/2014 232,000 245,000 tax exempt income 1,467,000 6,565,000 Date Purchased Current Market Value Cost Basis Other Information Security Alpha Motors common stock, 5,000 shares 1965 $ 10,000 $5,000,000 was a great investment! Bear Real Estate Holdings, LP 2008 125,000 partnership, passive activity, 250,000 suspended loss carryforwards = 25,000 50,000 lots of future potential (hopefully) 220,000 tax exempt income 2010 200,000 2005 200,000 7/1/2021 300,000 360,000 stable market value Battery Research, Inc., 2,000 shares City of Golden, CO general obligation bonds, 3%, due 2025 JM Smucker common stock, 2,000 shares Cisco Systems common stock, 2,000 shares IL Finance Authority, Advocate Health Systems bonds, 5% due 8/1/24, $200,000 face TOTALS 8/1/2021 400,000 440,000 stable market value 12/18/2014 232,000 245,000 tax exempt income 1,467,000 6,565,000