This is a question on Estate Taxes and filling out form 706

DEATH OF A SALESPERSON: The Secret Life of Billy Lowman This is the story of Billy Lowman -- just another common hack forced to make his way through life on the public links. As we shall see, Billy's life has a tragic ending. His demise, however, is not in vain, for it provides us all with a valuable lesson. Billy was born in San Francisco, California on November 9, 1938. Billy made a living selling golf shoes. He had a loving wife, Caddy, and two sons, Whiff and Hook. While Billy's job frequently took him on the road, unbeknownst to his family, he spent a great deal of this time on the golf course. This dark secret was discovered one day by Whiff, who paid a surprise visit to Billy during one of his business trips. Whiff spied Billy moving his ball to improve his lie, and their relationship was a strained one thereafter. (It was only after Billy's death that Whiff found out that Billy and his playing partners were employing "winter rules".) It was Billy's love of golf that lead to his undoing. That fateful day started like any other for Billy. He was out on the course by 6:00 a.m. with the usual suspects. On the fifth hole Billy struck a drive 265 yards -nearly long enough to reach the green on a par four! (Billy, as was his habit, drove from the red markers.) Alas, the ball reached the beach on the fly, plugging into the uphill side of a greenside bunker. It was here that Billy made a fateful decision. Racing to the trap so that he could play his next shot(s) without being seen by the rest of the foursome, Billy neglected to move the rake which lay directly in his line. Billy skulled his shot, and it ricocheted off of the rake, careening directly back at Billy. As he stood there in his best Nicklaus pose, the ball struck him in the temple, killing him instantly. Billy's playing partners were grief-stricken. Nary a word was spoken by any of them as they dragged his lifeless body over the remaining thirteen holes, and called Caddy to claim his remains at their favorite watering hole later that day. While Billy's death was a traumatic loss for the family, it turned that Billy had done quite well for himself gambling on the links. (It has been intimated that a former NBA star is numbered among the vanquished.) At his death, Billy owned the assets listed below. Each of them is subject to administration, unless otherwise noted. A copy of Billy's will is attached. Information regarding each asset is shown below, reflecting fair market value on the date of death, (3-02-13). Unless otherwise noted, each asset was owned by Billy and Caddy as community property. PROBATE ESTATE Billy's probate estate consists of the assets, and is subject to the debts and expenses described below. The disposition of this property is governed by Billy's will (attached). The probate is taking place in the Probate Division of the San Mateo County courts, case #13E2545. Cash. Billy and Caddy hold three accounts with Bank of America as community property. The account balances as of 3-02-13 are: Savings Account #739-0020 $55,287 Checking Account #739-130267 14,211 Certificate of Deposit #739-01-33409 311,296 Total $380,794 The accounts are all at the B of A branch located at 1312 El Camino Real, San Mateo, CA 94404. Securities. Billy and Caddy hold a portfolio of publicly traded securities, each of which represents common stock, and each of which is traded on the New York Stock Exchange. Billy's one-half community property share of these securities is as follows: Company IBX AB&C GQ Shares 15,000 20,000 10,000 High 52 38.5 62 Low 49 36 60 In addition, Billy owned 10,000 common shares of Lowman, Inc., a closely-held family corporation. The appraised value of the shares is $1,200,000. Real Estate. Billy owns two rental properties. The first is a ten-unit apartment building. Its address is 547 Fifth Avenue, San Mateo, CA, 94404. The building has been appraised at $2,850,000 as of 3-02-12. The property also secures a first mortgage. As of date of death, the principal amount of the loan was $471,106, and interest had accrued in the amount of $155. The second is a duplex located at 2322 Sunset Drive, Pacifica, CA, 94044. It has an appraised value of $645,000 on 3-02-13. And it secures a first mortgage in the amount of $681,162. Miscellaneous. Billy and Caddy own common household furnishings with an estimated value of $52,400. They do not own any valuable artwork, antiques, or other valuable property which would require an appraisal. In addition, Billy's personal effects, which are also common articles, have an estimated value of $10,000. Claims. A number of claims against the estate have been approved by the court. Expenses of Last Illness: Ambulance Service Doctor's Services $1,532 1,053 Medicines Total 233 $2,818 Funeral Expenses: Family Plot Mortician Wake Total $20,300 5,212 2,008 $27,520 Although Billy died on the links, Caddy called 911 upon learning of his plight, and emergency services were rendered. The costs shown above are not covered by insurance. Administration Expenses. Probate fees are as follows: Attorney Executor Referee Total $54,392 49,392 3,343 $107,127 Fees paid to the executor and referee are statutory amounts. In addition to his statutory fee, the attorney was awarded an extraordinary fee of $5,000 due to additional work done as part of clarifying ambiguities in the will. NONPROBATE PROPERTY Billy and Caddy also own some assets that pass without administration. Each is described below. Automobile. Billy Caddy own two automobiles -- a 2012 Toyota Camry hybrid and a 2013 Lexus RX 400h. There are no liens against either car. The Camry has a "Blue Book" value of $23,600, while the Lexus has a value of $40,800. Each car was acquired with community property, and each is held by them as "joint tenants". Personal residence. Billy and Caddy hold their personal residence in joint tenancy. (They are the sole joint tenants.) The house was acquired with community property, has an appraised value of $1,320,000, and is owned by the couple "free and clear". It is located at 1027 Escalero Avenue, San Mateo, CA 94404. IRA. Billy has an IRA with a balance at 3-02-13 of $922,892. It is being administered by Bank of America through his local branch. The account was funded through a rollover from Billy's old 401(k) plan at work. Caddy is designated as the beneficiary of the account. Insurance. Billy is named as the owner of a life insurance policy covering his life. The policy was issued by Prudential Insurance Company of America, policy #00125682-31. The face amount of the policy is $1,000,000. It was acquired solely with community property. Caddy is named as the beneficiary. Trust. On 7-1-95, Billy transferred $50,000 in cash and securities valued at $200,000 into a trust, naming Bank of America as trustee. The trust provides that all income must be distributed currently to Billy's children in equal shares. When the youngest of Billy's children reaches the age of 60, the remainder passes to Billy's children in equal shares. The trust also provides that Billy may remove the trustee at any time without cause, and may determine who shall serve as successor trustee. PART I (85%) Determine the amount of estate tax due with respect to Billy's estate. In making this determination, please do the following: Provide an analysis of each asset included in the gross estate (and why), and its value for estate tax purposes. Where appropriate, you may utilize any applicable discount. Calculate each available deduction, and explain the legal basis for claiming it. (You'll need to review Billy's will to be able to do this.) With respect to any debt or expense subject to 642(g), please determine whether you advise taking the income tax or estate deduction, (and why). For purposes of this analysis, you may assume that Caddy is in a marginal 45% income tax bracket for state and federal purposes combined. You should consider both the relative tax savings involved, and the economic impact on the respective beneficiaries. Calculate the estate tax liability, taking into account all available credits. Beware: in some instances, you do not have sufficient information to completely analyze the nature of a property interest, the extent of Billy's obligations to third parties, etc. It is incumbent upon you to ask your client questions in the discussion area set up for the midterm!! PART II (15%) Complete Form 706 for the estate. That means all necessary schedules. You may assume that the return was timely extended, and you need not attach Form 4768 (the extension form). Provide a list of all necessary attachments. (You need not actually attach them, particularly since you do not have them all!) Form 706 may be obtained by going to the IRS' website athttp://www.irs.gov. Additional information: Caddy Lowman 1027 Escalero Avenue San Mateo, CA 94404 SSN XXX-XX-XXX4 Billy Lowman 1027 Escalero Avenue San Mateo, CA 94404 SSN XXX-XX-XXX1 Whiff Lowman 1 Wilshire Blvd. Los Angeles, CA 90001 SSN YYY-YY-YYY5 Hook Lowman 100 Siskiyou Ct. Pacifica, CA 94044 SSN ZZZ-ZZ-ZZZ6 Ford Frick, Executor, Trustee 536 Mission Street San Francisco, CA 94105 SSN AAA-AA-AAA1 Estate of Billy Lowman EIN BB-BBBBBB2 The Lowman Marital Trust EIN CC-CCCCCC3