Description
PLEASE FOLLOW THE INSTRUCTIONS CLOSELY AND ONLY BID IF YOU HAVE KNOWLEDGE OF SUBJECT1. NEED TO USE TEMPLATE (attached)2. READ and FOLLOW instructions (attached)3. Based on Quiz Scene Scenario (attached)4. And Study guide (attached)USE THE QUESTIONS TO COMPLETE THE PLAN THAT ARE IN THE STUDY GUIDE AND SCENARIO
Unformatted Attachment Preview
CP Cash
CP Fresh Veggies
CP Investment Portfolio
H Life Insurance on Darrin
CP Rental Property
CP Primary Residence
H Vacation Home 1
W Vacation Home 2
CP Personal Property
H Auto 1
W Auto 2
H Vintage Mustang
H Yacht
Total Assets
% Darrin’s
Heir /
Current
Ownerhsi
Legatee /
Market Value
p
Darrin’s Value Beneficiary
$
150,000
$ 4,000,000
$ 3,000,000
$ 1,000,000
$
500,000
$ 1,500,000
$
950,000
$
500,000
$
900,000
$
70,000
$
60,000
$
80,000
$
900,000
$ 13,610,000
50% $
$
$
$
$
$
$
0% $
$
$
$
$
$
$
CP Credit Card 1
$
16,000
CP Credit Card 2
$
5,000
CP Mortgage – Primary Residence $
750,000
CP Mortgage – Rental Property
$
300,000
W Auto 2
$
70,000
Total Liabilities
$ 1,141,000
$
$
$
$
0% $
$
–
$
$
$
$
$
$
–
Other Items
H – Estate Admin Expense
W – Estate Admin Expense
H – Funeral Expense
W – Funeral Expense
H – Gift Taxes Paid
Total
$
$
$
$
$
250,000
250,000
100,000
100,000
347,760
75,000 Wife
Elizabeth
75,000
Reason for Tranfer
Clause 6 of will
Darrin
Darrin
Darrin
Gross
Probate
Marital
Darrin Gross
Probate
Estate
Estate
Deduction
Estate
Estate
Yes
Yes
Yes
Darrin
$
$
$
$
$
$
$
$
$
$
$
$
$
75,000
–
$
$
$
$
$
$
$
$
$
$
$
$
$
75,000
–
$
$
$
$
$
–
$
$
$
$
$
–
$
$
$
$
$
$
75,000
$
$
$
$
$
$
75,000
Darrin
Marrital
Deduction
$
$
$
$
$
$
$
$
$
$
$
$
$
75,000
–
$
$
$
$
$
–
$
$
$
$
$
$
75,000
BUSI 354
MEMO: ESTATE PLAN ASSIGNMENT INSTRUCTIONS
OVERVIEW
After completing the Estate Plan Assignment, analyze your answers to the 10 questions asked
during the exam.
INSTRUCTIONS
You will write a memo to your “supervisor” explaining your choices for the estate plan for Kathi
and Darren. If you miss a question on the exam, research the correct answer. Explain your
rationale for choosing the answers that you chose during the Estate Plan Assignment, or your
revised answer as needed. This memo should be 8–12 pages double-spaced and must conform to
current APA guidelines.
Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.
BUSI 354
MEMO: ESTATE PLAN TEMPLATE
{Notes with curly bars should not actually be included in your paper. They are there to provide some
additional commentary}
{Memo Heading. This should address your audience}
Date:
To: Professor Jantz
From: Student name
Subject: {Estate Plan for …. Or something similar}
Intro
{A paragraph or two identifying the couple and the purpose of the memo.}
Questions
{Numbered paragraphs using the question number from the Estate Plan Assignment Instructions with
a short heading. For instance, it could look like this
3. Gross Estate Calculation:
Or
8. Gift to Andrew:
That way it is easy for you or manager to reference later}
{You do not need to need to restate the question}
{You should provide a substantive explanation of the correct answer to the question. If you got the
question wrong on the exam, do some additional research and try to correct your response.}
{Make sure to show all work on calculations. I want to know that you understand the answer.}
Reference List
{APA formatted list}
{Should be on separate page}
BUSI 354
QUIZ: ESTATE PLAN SCENARIO STUDY GUIDE
General Preparation
Darrin’s estate will be the primary focus of this exercise, although there are a few questions regarding
Kathi. You can review the Estate Plan Scenario Worksheet that lists of all the couple’s assets along
with columns to designate Darrin’s % ownership, Darrin’s ownership value, who will received the asset
upon Darrin’s death (heir, legatee, beneficiary, the reason you believe the asset will be transferred to that
person (i.e. clause 5 in the will, titling of account, bypassed probate by contract law, etc.), and place to
mark if you believe the asset/liability/expense should be included in the gross estate, probate estate or
marital deduction calculation. Gathering this information will go a long way in helping you with the
specific questions, so you are encouraged to fill the Estate Plan Scenario Worksheet out prior to going
through the specific questions listed below.
Specific Questions Review
You should be able to look up most of the keywords in Appendix B to get the textbook reference.
1. Review chapter 7. All four potential solutions are discussed there in close proximity to one
another. Remember the goals they are trying to achieve:
“Kathi and Darrin would like to reward Scott for all of his hard work by giving Scott and Elizabeth
3/4 of the business and giving the remaining 1/4 of the business to James. They do not want James
to have any control over the business, just to have an income interest.”
2. Review chapter 4 (specifically 109-113). Exhibit 4.5 & 4.6 provide a concise picture of the probate
process. As you read through the instructions, don’t forget the Notes to the Financial Statements.
3. The Gross Estate includes all the assets in Darrin’s estate. Remember the three-year look-back
period. An example of the Gross Estate calculation can be found in chapters 6 & 14.
4. The probate estate calculates all of the assets that will be distributed through probate process.
Please refer to exhibit 4.5 & 4.6. Additionally, there is an example in chapter 4 of how to calculate
the probate estate.
5. The marital deduction includes all assets that transfer from the Gross Estate to the spouse.
Remember the deductions. A wrinkle in this situation is that the couple live in a community
property state. Make sure to review that topic in chapter 3, pgs. 77-80.
6. Remember there is a distinction between the failure-to-file vs. failure-to-pay. There is an example
of this calculation on pg. 212.
7. Keywords: Qualified transfers, predeceased ancestor exception (chapter 13, pg. 502), irrevocable
trusts.
8. Keywords: Trusts for minors 2503(c), skip person, GSTT tax
9. Community Property (chapter 3 pgs. 77-80), Intestacy (chapter 4, pgs. 98-99 or chapter 2, pgs. 2022).
10. Election to Disclaim (chapter 12, pgs. 485-487), Predeceased ancestor exception (chapter 13, pg.
502), remember to review your asset worksheet.
11. Keyword: Adjusted Basis (chapter 6, pgs. 212-15)
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BUSI 354
12. Keyword: Adjusted Basis; Community property vs. common law (separate property) state (chapter
3, pgs. 77-80 or chapter 6, pgs. 212-15).
13. Split interest gift (chapter 9, pgs. 348-358). Remember the order.
14. Keyword: Will-Clauses
15. Chapter 12
16. Income taxes (chapter 12, pgs. 474-475)
17. Income taxes (chapter 12, pgs. 474-475)
18. Chapter 12
19. Keyword: Alternative Valuation Date
20. Keyword: Incident of Ownership in a life insurance policy
Page 2 of 2
BUSI 354
QUIZ: ESTATE PLAN SCENARIO OVERVIEW
In order to complete the Quiz: Estate Plan Scenario, you will need to review the Estate Plan
Scenario below. In addition, you will need to review the Quiz: Estate Plan Scenario Study
Guide and the Estate Plan Scenario Worksheet.
After you review the Estate Plan Scenario below, the Estate Plan Scenario Worksheet, and the
Quiz: Estate Plan Scenario Study Guide, you are ready to complete the Quiz: Estate Plan
Scenario.
Note: Do not take the Quiz: Estate Plan Scenario without first reading and completing all
requirements in the Estate Plan Scenario Worksheet and the Quiz: Estate Plan Scenario
Study Guide.
Estate Plan Scenario
Kathi and Darrin Background
Kathi and Darrin have been married for 50 years and are both in good health. Kathi and Darrin
live in a community property state. They have the following children and grandchildren:
Children
Elizabeth
James
Lynn
Age
Age 45
Age 35
Deceased
Grandchildren
4 children
3 children
1 child
Elizabeth, an estate planning attorney, is married, healthy, and happy. Kathi and Darrin adore
Elizabeth’s husband, Scott, and their 4 children.
James, a high net worth investment consultant, was recently divorced and his ex-wife, Catherine,
has custody of their 3 children. Kathi and Darrin, never quite cared for Catherine, as she always
seemed to be quite snooty. Especially since the divorce, the relationship between Kathi and
Catherine has been very strained. Since his divorce, James has had somewhat of a mid-life crisis.
He recently rented a penthouse apartment and bought a new Jaguar. James has also been dating
Natalie, a 21-year-old swimsuit model. While Kathi and Darrin are confident that this is only a
phase, they are concerned about giving any gifts to James or his children outright.
Lynn, Kathi and Darrin’s third child, was a bit of a wild child. Lynn died in a tragic motorcycle
accident in her senior year of college while she was on her way home to tell her parents about a
big secret she had been keeping. The summer before, Lynn had given birth to a baby girl named
Marie. At the time, Lynn gave the baby to the baby’s father, an older married man, although no
official adoption was ever performed. Kathi and Darrin still do not know about Marie.
Kathi and Darrin own Fresh Veggies, a popular organic health food store. Scott, Elizabeth’s
husband, has worked at the store since he was a kid. Scott is now the store manager and handles
most of the day-to-day functions, with very little input from Kathi and Darrin. Kathi and Darrin
would like to reward Scott for all of his hard work by giving Scott and Elizabeth 3/4 of the business
and giving the remaining 1/4 of the business to James. They do not want James to have any control
over the business, just to have an income interest.
Page 1 of 8
BUSI 354
Elizabeth’s youngest child, Andrew, was born with a serious physical disability. To provide
additional support for Andrew, Darrin created an irrevocable trust with an $8,014,000 transfer of
separate property 5 years ago. The trust meets the requirements of Section 2503(c).
Assume for any calculation of GSTT that the annual exclusion was $14,000 and the lifetime
exemption was $5,250,000. Also assume that the GSTT and gift tax rates were 40% for
determination of GSTT even though they were paid 5 years prior.
Darrin and Kathi made the following additional lifetime transfers:
• Four years ago, Darrin gave Elizabeth, James, and their spouses $100,000 each (assume
the annual exclusion was $11,000) of community property.
• Two years ago, Darrin gave Elizabeth, James, and their spouses $200,000 each of his
separate property. Darrin paid gift tax of $347,760.
Kathi and Darrin have never elected to split gifts of separate property.
Kathi and Darrin estimate the following at each of their deaths:
• The last illness and funeral expenses are expected to be $100,000 per person.
• Estate administration expenses are estimated at $250,000 per person.
The Will
Kathi does not have a will. Darrin has an old, outdated will leaving most probate assets to Kathi.
Clauses from Darrin’s Statutory Last Will and Testament
I, Darrin, being of sound mind and wishing to make proper disposition of my property in the event
of my death, do declare this to be my Last Will and Testament. I revoke all of my prior wills and
codicils.
1. I have been married but once, and only to Kathi with whom I am presently living. Out of
my marriage to Kathi, 3 children were born, namely Elizabeth, James and Lynn. I have
adopted no one nor has anyone adopted me.
2. I leave my Vintage Mustang and House Boat to my son, James.
3. I leave the life insurance proceeds on my life to my daughter, Elizabeth.
4. I leave Vacation Home 1 to my daughter, Lynn.
5. I leave Auto 1 to the Methodist Church, a qualified charity.
6. I give the residual of my estate to Kathi, my wife.
7. In the event that Kathi predeceases me or fails to survive me for more than 6 months from
the date of my death, I give any interest of my estate determined to be payable to her to my
children, Elizabeth, James and Lynn, in equal and 1/3 shares.
8. In the event that any of the named legatees should predecease me, die within 6 months
from the date of my death, disclaim, or otherwise fail to accept any property bequeathed to
him or her, then such interest will pass to the said legatee’s descendents, otherwise his or
her share of all of my property of which I die possessed shall be paid equally among the
surviving named legatees.
9. I name my best friend, Keith, to serve as the executor of my succession with full seizin and
Page 2 of 8
BUSI 354
without bond.
10. I direct that the expenses of my last illness, funeral, and the administration of my estate
shall be paid by my executor as soon as practicable after my death and allocated against
the residual estate.
11. Since I have made numerous lifetime gifts to my children, all inheritance, estate,
succession, transfer, and other taxes (including interest and penalties thereon) payable by
reason of my death shall be allocated to the children’s share, regardless of whether my
spouse survives me.
Page 3 of 8
BUSI 354
Statement of Financial Position (Darrin and Kathi)
Notes to Financial Statements:
1. Assets are stated at fair market value (rounded to even dollars).
2. Liabilities are stated at principal only (rounded to even dollars).
3. The adjusted basis of the personal residence is $600,000.
4. Kathi received vacation home 2 from her grandmother, Lois. Kathi and Lois were
always very close and Lois gave her the home when Elizabeth was first born so Kathi
could enjoy motherhood as much as Lois had. Lois purchased the vacation home for
$30,000 and the FMV of the home at the date of transfer was $200,000. The FMV when
Lois died was $250,000.
5. The life insurance policy has Kathi listed as the designated beneficiary. The Investment
account is a Transfer on Death account with Elizabeth and James as the listed
beneficiaries of both Darrin and Kathi’s shares.
6. The Yacht was purchased by Darrin after his House Boat was destroyed by a Hurricane.
7. Property Ownership:
• CP – Community Property.
• H – Husband separate.
• W – Wife separate.
8. Insurance face value (death benefit) and cash value of $1,000,000 are the same.
Page 4 of 8
BUSI 354
Estate Plan
Answer the following questions. Assume the facts given in the fact pattern and that the 2013 estate
and gift tax rates and annual exclusion apply to all transfers in the current and previous years.
(Numbers are rounded for convenience.)
1.
Which of the following transfer mechanisms would be appropriate for the transfer of Fresh
Veggies to James and Elizabeth assuming Kathi and Darrin did not want to make an outright
gift of the company to them?
1. Private Annuity.
2. SCIN.
3. Family Limited Partnership.
4. QPRT.
(a) 1 only.
(b) 3 only.
(c) 1 and 2.
(d) 1, 2, 3 and 4.
2.
If Darrin died today, which of the following statements is true regarding the transfers made
in his will?
(a) Kathi will receive Darrin’s interest in the Investment Portfolio.
(b) Elizabeth will receive the proceeds of the life insurance policy.
(c) James will receive the yacht in place of the house boat.
(d) Marie may potentially receive Vacation Home 1 as Lynn’s rightful heir.
3.
Assuming Darrin died today, calculate his gross estate.
(a) $5,525,000.
(b) $7,525,000.
(c) $8,025,000.
(d) $8,372,760.
4.
Assuming Darrin died today, calculate his probate estate.
(a) $5,525,000.
(b) $7,525,000.
(c) $8,025,000.
(d) $8,380,320.
5.
Assuming Darrin died today, calculate the marital deduction available for transfers to Kathi
(remember this is a net amount).
(a) $4,425,000.
(b) $4,539,500.
(c) $5,425,500.
(d) $6,375,000.
Page 5 of 8
BUSI 354
6.
Ignoring the above data, assume that Darrin died today and the estate tax due was $702,591
and Keith is appointed executor. Unfortunately, Keith forgot to file an Estate Tax Return
(Form 706) and pay the estate tax due until 45 days after the return’s due date. How much is
the failure-to-file penalty?
(a) $7,026.
(b) $63,233.
(c) $70,259.
(d) $77,285.
7.
Assume Kathi and Darrin wanted to establish college funds for each of the grandchildren.
Which of the following statements would be true?
(a) An irrevocable trust with no retained property rights would be a completed gift
for gift tax and estate tax purposes.
(b) The transfers would not be subject to GSTT, regardless of to whom the money
is paid, because the payments were made for education.
(c) If Darrin and Kathi found out about Marie and wanted to establish a fund for her
as well, then the transfer to Marie would be subject to GSTT.
(d) An appropriate planning technique for both Elizabeth and James’ family would
be to place the assets into 2 family trusts, 1 for Elizabeth’s children (with
Elizabeth and Scott as joint trustees) and 1 for James’ children (with Catherine
as the trustee).
8.
Which of the following statements regarding the transfer to Andrew 5 years ago is correct?
(a) Andrew is a skip person because he is more than 37½ years younger than Darrin,
thus the transfer results in a taxable termination.
(b) The transfer will qualify for the GSTT annual exclusion.
(c) Assuming a 40% GSTT rate applies to this transfer, the GSTT will be 40% of
$8,000,000.
(d) The only tax consequence for this transfer will be GSTT due.
9.
Assuming Kathi died today, which of the following statements is true?
(a) Kathi’s assets would avoid probate.
(b) State intestacy law would dictate who received Kathi’s assets.
(c) All of Kathi’s community property assets would transfer to Darrin because of
the implied right of survivorship.
(d) Kathi’s gross estate would include the life insurance policy on Darrin.
10. Assuming Darrin died today, which of the following statements regarding a valid disclaimer
is correct?
(a) Assume Darrin left Elizabeth his interest in the Yacht. If Elizabeth disclaims her
property then the transfer will be subject to GSTT.
(b) If James disclaimed his property, the property would transfer to Kathi.
(c) If Kathi wanted to disclaim a portion of the property, she must do so by the due
date of the estate tax return plus extensions.
(d) In order for the disclaimer to be valid it must be in writing or witnessed by 3
nonrelated individuals if the disclaimer is oral.
Page 6 of 8
BUSI 354
11. Assume Kathi died today and left Vacation Home 2 to Elizabeth. What would Elizabeth’s
adjusted basis be in Vacation Home 2?
(a) $30,000.
(b) $200,000.
(c) $250,000.
(d) $500,000.
12. Assume Kathi died today and left her share of the personal residence to Darrin. What would
Darrin’s adjusted basis be in the personal residence?
(a) $300,000.
(b) $600,000.
(c) $1,050,000.
(d) $1,500,000.
13. Kathi and Darrin are considering making a charitable contribution to the Boys and Girls Club
of America and want the grandchildren to receive income from the property for an extended
period. Which of the following charitable devices may be appropriate to meet their
objectives?
1. Charitable Remainder Annuity Trust.
2. Charitable Remainder Unitrust Trust.
3. Pooled Income Fund.
4. Charitable Lead Trust.
(a) 1 only.
(b) 1, 2, and 3.
(c) 2, 3, and 4.
(d) 1, 2, 3, and 4.
14. Which of the following types of clauses appear in Darrin’s will?
1. Specific Bequests.
2. Survivorship Clause.
3. No-contest clause.
4. Simultaneous death clause.
(a) 1 only.
(b) 2 and 3.
(c) 1 and 2.
(d) 1, 2, 3, and 4.
15. Assume Darrin died today and Keith is appointed as executor. Of the following, which is not
an available election Keith can make before he files Darrin’s estate tax return?
(a) Electing the QTIP election on property passing to Kathi.
(b) Utilizing the annual exclusion against testamentary transfers.
(c) Selection of the income tax year end for Darrin.
(d) Deducting the expenses of administering Darrin’s estate on the estate tax return
(Form 706).
Page 7 of 8
BUSI 354
16. Assume Darrin died today. Which filing status can Kathi use on her income tax return for the
calendar year of Darrin’s death?
(a) Single.
(b) Head of Household.
(c) Married Filing Jointly.
(d) Qualifying Widow.
17. Assume Darrin died today. Which filing status can Kathi use on her income tax return in the
calendar year following Darrin’s death?
(a) Single.
(b) Head of Household.
(c) Married Filing Jointly.
(d) Qualifying Widow.
18. Assume Darrin died today, Keith is appointed executor, and the estate does not have
sufficient cash to pay the required taxes or expenses. Of the following statements, which is
not true regarding selling an estate’s assets to generate cash?
(a) The estate may have income tax consequences.
(b) The assets may not be sold at full, realizable fair market value.
(c) Any losses on the sale of the assets are deductible as losses on the estate tax
return.
(d) Any selling expenses are deductible on the estate tax return.
19. Assume Darrin dies today and Keith is appointed executor. Keith is considering electing the
alternate valuation date. Which of the following statements does not correctly reflect the rules
applicable to the alternate valuation date?
(a) The general rule is the election covers all assets included in the gross estate and
cannot be applied to only a portion of the property.
(b) Assets disposed of within 6 months of decedent’s death must be valued on the
date of disposition.
(c) The election can be made even though an estate tax return does not have to be
filed.
(d) The election must decrease the value of the gross estate and decrease the estate
tax liability.
20. Assume Darrin transfers ownership of the life insurance policy on his life to an Irrevocable
Life Insurance Trust (ILIT) and retains the right to borrow against the policy. Assume Darrin
dies 5 years later. Which of the following is correct regarding the treatment of the proceeds
of the life insurance policy?
(a) The proceeds will be included in Darrin’s federal gross estate if he has any
outstanding loans against the life insurance policy.
(b) The proceeds will be included in Darrin’s federal gross estate if Darrin continued
paying the policy premiums after the life insurance policy was transferred to the
ILIT.
(c) The proceeds will never be included in Darrin’s federal gross estate.
(d) The proceeds will always be included in Darrin’s federal gross estate.
Page 8 of 8
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