LO.2, 3 Your client, Annie O’Toole (22 Beneficiary Lane, Bowling Green, KY 42101), has come to you for some advice regarding gifts of property. She has just learned that she must undergo major surgery, and she would like to make certain gifts before entering the hospital. On your earlier advice, she had established a plan of lifetime giving for four prior years.

Build a spreadsheet, supplemented by a list of your assumptions, and write a cover letter to Annie, discussing each of the following assets that she is considering using as gifts to family and friends. In doing so, evaluate the income tax consequences of having such property pass through her estate to the designated heir.

a. Annie plans to give a cottage to her son to fulfill a promise made many years ago.

She has owned the cottage for the past 15 years and has a basis in it of $30,000 (fair market value of $20,000).

b. Annie has $100,000 of long-term capital losses that she has been carrying forward for the past few years. Now she is considering making a gift of $200,000 in installment notes to her daughter. Her basis in the notes is $100,000, and the notes’ current fair market value is $190,000.

c. Annie has promised to make a special cash bequest of $25,000 to her grandson in her will. However, she does not anticipate having that much cash immediately available after her death. Annie requests your advice concerning the income tax consequences to the estate if the cash bequest is settled with some other property.