Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 15, Problem 6FPE
Summary Introduction
To explain: The use of trusts for estate tax planning.
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Montgomery has decided to engage in wealth planning and has listed the value of his assets below. The life insurance has a cash surrender value of $154,000, and the proceeds are payable to Montgomery’s estate. The Walen Trust is an irrevocable trust created by Montgomery’s brother 10 years ago and contains assets currently valued at $800,000. The income from the trust is payable to Montgomery’s faithful butler, Walen, for his life, and the remainder is payable to Montgomery or his estate. Walen is currently 37 years old, and the §7520 interest rate is currently 5.4 percent. Montgomery is unmarried and plans to leave all his assets to his surviving relatives. (Refer to Exhibit 25-1, Exhibit 25-2 and Exhibit 25-4.)
Property
Value
Adjusted Basis
Auto
$ 37,000
$ 72,000
Personal effects
92,000
127,000
Checking and savings accounts
284,000
284,000
Investments
2,585,000
855,000
Residence
1,485,000
1,065,000
Life insurance proceeds
1,085,000
84,000
Real estate investments…
In 2008 Anne and Jim established a living trust. Anne and Jim have 2 children Olivia and Patrick (ages 19 and 21) from the current marriage and Anne has a child Elliott (age 33) from a prior marriage. Their main concern was to protect the assets for their children. The trust provided for Survivor, Bypass and QTIP trusts upon the first spouse’s death.
When Jim died in 2011 the couple held the following property in their trust:
Jim’s SP $2,600,000
CP $20,000,000
Anne’s SP $2,400,000
A. What is the amount in Anne’s taxable estate if she dies in 2021. The following are values of the various trusts in 2021:
Survivor trust $15,000,000
Bypass trust is $9,000,000
QTIP is $10,000,000?
What assets are included in Jim’s estate? Is there any estate tax payable? Or could you apply marital deduction? C. Show allocation of assets into Survivor’s trust, Bypass trust and QTIP trust.
Bob and Vikki are a married couple with $250,000 in assets. $100,000 of their assets were inherited by Vikki during the marriage when her uncle died. They live in Nevada, which is a community-property state. How much of their assets is considered to be community property?
Chapter 15 Solutions
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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- Your 80-year-old uncle has an estate valued at over $10 million and asked for your advice regarding how to make sure that each of his heirs receive certain assets and that estate taxes are minimized. What steps would you recommend? Be sure to address such issues as wills, trusts, gifting, and probate.arrow_forwardYour client is terminally ill. Her potential gross estate, valued at $12.9 million, includes the following assets: A life insurance policy on her life, with a death benefit of $500,000; her deceased husband is the named beneficiary A general power of appointment (valued at $500,000) over the assets of a trust established by her husband; her children are the designated remaindermen of the trust A $500,000 retained life estate in the family residence Your client also expects to receive a $500,000 bequest within the next four months from her deceased sister's estate; the client's children are the contingent beneficiaries of the bequest. Your client would like to transfer a portion of her estate to her two children while she is alive to reduce her potential estate tax liability to the greatest extent possible. Which one of the following exclusion techniques would be the most appropriate to reduce the value of your client's potential gross estate? A)disclaim the inheritance before…arrow_forwardLast year Robert transferred a life insurance policy worth $470,000 to an irrevocable trust with directions to distribute the corpus of the trust to a grandson, Danny, upon graduation from college, or to Danny's estate upon death. Robert paid $41,000 of gift tax on the transfer of the policy. Early this year, Robert died, and the insurance company paid $4.2 million to the trust. What amount, if any, is included in Robert's gross estate? Note: Enter your answers in dollars, not millions of dollars. Amount to be included in Robert's gross estatearrow_forward
- Marie Hardy’s will has the following provisions: “I leave the cash balance deposited in the First National Bank (up to a total of $50,000) to Jack Abrams. I leave $18,000 cash to Suzanne Benton. I leave 1,000 shares of Coca-Cola Company stock to Cindy Cheng. I leave my house to Dennis Davis. I leave all of my other assets and properties to Wilbur N. Ed.” Assume that the estate has the following assets: $41,000 cash in the First National Bank, $16,000 cash in the New Hampshire Savings and Loan, 800 shares of Coca-Cola stock, 1,100 shares of Xerox stock, a house, and other property valued at $13,000. What distributions will be made from this estate? Assume that the estate has the following assets: $55,000 cash in the First National Bank, $6,000 cash in the New Hampshire Savings and Loan, 1,200 shares of Coca-Cola stock, 600 shares of Xerox stock, and other property valued at $22,000. What distributions will be made from this estate?arrow_forwardDuring her lifetime, Elaine made several property transfers, including the following: a) The $11,0000 in cash for each of her nieces and nephews that she placed in a revocable trust last year for their benefit b) The $10,000 she paid four years ago to Dr. Meyers to pay off her father's medical bill c) The $28,000 remainder interest given to her daughter, Elsie, two years ago in a irrevocable Grantor Retained Income Trust that Elaine established and funded d) The $10,000 she paid to State University for Elsie's books, and room and board six years ago e) The $29,000 in cash she gave six years ago to her husband Rolf Assume that each of these transfers constitutes Elaine's only transfer to each transferee during the year in which the transfer was made. As her Financial adviser, which of the following transfers would you tell her are fully or partially includible in her total gifts for the purpose of calculating her federal gift tax liability? Explain your response.arrow_forwardMarie Hardy’s will has the following provisions: "I leave the cash balance deposited in the First National Bank (up to a total of $50,000) to Jack Abrams. I leave $18,000 cash to Suzanne Benton. I leave 1,000 shares of Coca-Cola Company stock to Cindy Cheng. I leave my house to Dennis Davis. I leave all of my other assets and properties to Wilbur N. Ed." a. Assume that the estate has the following assets: $41,000 cash in the First National Bank, $16,000 cash in the New Hampshire Savings and Loan, 800 shares of Coca-Cola stock, 1,100 shares of Xerox stock, a house, and other property valued at $13,000. What distributions will be made from this estate? (Make estate distributions in the order mentioned in the question.) cash Jack 41,000 cash Suzanne 18,000 Coca-Cola Cindy 800 Shares House Dennis 0 Other property Wilbur ???? The problem needs a $$ amount for Wilbur, and I cannot get it b. Assume that the estate has the following assets: $55,000 cash in the First National Bank, $6,000 cash…arrow_forward
- Donna Stober’s estate has the following assets (all figures approximate fair value): The house, cash, and other assets are left to the decedent’s spouse. The investment land is contributed to a charitable organization. The automobiles are to be given to the decedent’s brother. The investments in stocks and bonds are to be put into a trust fund. The income generated by this trust will go to the decedent’s spouse annually until all of the couple’s children have reached the age of 25. At that time, the trust will be divided evenly among the children. The following amounts are paid prior to distribution and settlement of the estate: funeral expenses of $20,000 and estate administration expenses of $10,000. What value is to be reported as the taxable estate for federal estate tax purposes?arrow_forwardMarie Hardy’s will has the following provisions:“I leave the cash balance deposited in the First National Bank (up to a total of $50,000) to Jack Abrams. I leave $18,000 cash to Suzanne Benton. I leave 1,000 shares of Coca-Cola Company stock to Cindy Cheng. I leave my house to Dennis Davis. I leave all of my other assets and proper-ties to Wilbur N. Ed.”a. Assume that the estate has the following assets: $41,000 cash in the First National Bank, $16,000 cash in the New Hampshire Savings and Loan, 800 shares of Coca-Cola stock, 1,100 shares of Xerox stock, a house, and other property valued at $13,000. What distributions will be made from this estate?b. Assume that the estate has the following assets: $55,000 cash in the First National Bank, $6,000 cash in the New Hampshire Savings and Loan, 1,200 shares of Coca-Cola stock, 600 shares of Xerox stock, and other property valued at $22,000. What distributions will be made from this estate?arrow_forwardTom Hruise was an entertainment executive who had a fatal accident on a film set. Tom's will directed his executor to distribute his cash and stock to his spouse, Kaffie, and the real estate to a church, The First Church of Methodology. The remainder of Tom's assets were to be placed in trust for three children. Tom's estate consisted of the following: Assets: Personal assets. Cash and stock Intangible assets (film rights) Real estate Liabilities: Mortgage Other liabilities $ 1,780,000 24,300,000 73,000,000 15,300,000 114,380,000 $ 3,500,000 4,400,000 $ 7,900,000 Estate Tax Due $ a. Tom made a taxable gift of $5.40 million in 2011. Compute the estate tax for Tom's estate. (Refer to Exhibit 25-1 and Exhibit 25-2.) Note: Enter your answers in dollars, not millions of dollars.arrow_forward
- Marie Hardy's will has the following provisions: "I leave the cash balance deposited in the First National Bank (up to a total of $50,000) to Jack Abrams. leave $18,000 cash to Suzanne Benton. I leave 1,000 shares of Coca-Cola Company stock to Cindy Cheng. I leave my house to Dennis Davis. I leave all of my other assets and properties to Wilbur N. Ed." a. Assume that the estate has the following assets: $41,000 cash in the First National Bank, $16,000 cash in the New Hampshire Savings and Loan, 800 shares of Coca-Cola stock, 1,100 shares of Xerox stock, a house, and other property valued at $13,000. What distributions will be made from this estate? b. Assume that the estate has the following assets: $55,000 cash in the First National Bank, $6,000 cash in the New Hampshire Savings and Loan, 1,200 shares of Coca-Cola stock, 600 shares of Xerox stock, and other property valued at $22,000. What distributions will be made from this estate? (Make estate distributions in the order mentioned…arrow_forwardDoris, 55, has $100,000 in liquid assets that she would like to transfer to her nephew, Matt, 22, for his comfort and welfare. Doris would like Matt to receive the income produced by these assets annually until he is 35. At that time, she would like to give the assets to him outright. Which one of the following is the most appropriate lifetime transfer technique for Doris to use to achieve her objectives? A) A gift of the assets under the provisions of the Uniform Gifts to Minors Act B) An Internal Revenue Code Section 2503(c) trust C) A 13-year reversionary trust D) An Internal Revenue Code Section 2503(b) trustarrow_forwardTom Hruise was an entertainment executive who had a fatal accident on a film set. Tom's will directed his executor to distribute his cash and stock to his spouse, Kaffie, and the real estate to a church, The First Church of Methodology. The remainder of Tom's assets were to be placed in trust for three children. Tom's estate consisted of the following: Assets: Personal assets Cash and stock Intangible assets (film rights) Real estate Liabilities: Mortgage Other liabilities $ 1,020,000 25,900,000 81,000,000 16,900,000 $ 124,820,000 $ 5,100,000 6,000,000 $ 11,100,000 a. Tom made a taxable gift of $7.00 million in 2011. Compute the estate tax for Tom's estate. (Refer to Exhibit 25-1 and Exhibit 25-2) Note: Enter your answers in dollars, not millions of dollars. Estate Tax Duearrow_forward
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