07 Jun Question 1. Mark died on June 6, 2012,
Question
1. Mark died on June 6, 2012, at a hospital. His death resulted from injuries in a car accident he had two days earlier. At the time of his death he was married to Rachel.
Until his recent retirement he owned and operated a boating sales and support business. At retirement Mark sold his stock in the company to his adult children for cash and a non-interest bearing promissory note. On June 6 the notes have a principle balance of…
Paul $310,000
Scott $290,000
Roland $180,000
Ava $220,000
The business is doing well and they are expected to be able to pay their obligations.
From his company his estate received the following distributions in July after his death because he failed to designate a beneficiary.
Group term life insurance $100,000
Retirement Plan $1,300,000
He owned an insurance policy on Rachel’s life – Maturity value of $250,000, FMV of $50,000 on the date of death. Rachel had a policy on his life – Maturity value of $500,000 payable to her as the beneficiary.
They own a home in joint tenancy with a basis of $350,000 and a FMV of $1,100,000.
He purchased in 1990 timberland for $250,000 in his name and his kids name as tenants in common. It currently has a FMV of $600,000. No gift taxes were due.
He has weekend home in the county that has a FMV of $400,000 that he gave to his kids two years ago as a gift but continues to use some weekends a year.
His other assets are.
Checking $12,000
Money market – Jointly with Rachel 44,000
CD at Bank 103,000
City of Minneapolis bond 204,000
Receivable from Falcon Insurance 48,000
Vintage boat 180,000
Household goods 95,000
The receivable from Falcon Insurance represents the amount later paid to his estate for the value of the car that was totaled in the accident. The car’s FMV was 49,000 less a 1,000 deductible.
He has gift taxes of $15,000 that he paid on a gift in 2010 and $10,000 on a gift in 2008. These gifts are not ones mentioned above.
Debts and expenses of the administration are …
Credit card debt $2,000
Hospital expenses 32,000
Funeral expenses 12,000
Legal fees 38,000
Accounting/Appraisal fees 16,000
Tax liabilities 42,000
Payment of Pledge to church 40,000
Under his will property was placed in trust for his children and grandchildren. He leaves $30,000 to the public library.
Calculate Mark’s gross estate and his tax due. Remember to use the 2012 tax tables.
2. One spouse has considerable wealth and the other very modest wealth.
a. Why is an exemption bypass plan a “hit or miss” argument?
b. What is the minimum amount of property that each spouse must own to assure a bypass plan will work?
c. What change could the couple make that would remove the “hit and miss” aspect of the plan?
d. Regarding the change in part c, how much should be involved?
e. What factors help determine whether a bypass should entail an outright transfer or a transfer into trust? Is estate tax saving a factor? Why or why not?
3. S1 and S2 have equal wealth and their total estate value is $20,000,000. They are your client and they need you to fully explain the benefits and consequences of the AB estate plan and ABC estate plan. Give them enough information to decide which plan is best suited for their needs. (The more you explain the more I will know you understand)
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