Your client Mary, a surviving spouse of John, has approached you to provide her with gift and estate planning services. Remember to review and reference the applicable sections of the Tax Code, including Publications 706 and 709.
1. Mary is in the process of transferring a residential house worth $700,000 and company stock worth $10,000,000 to her descendants. What is the rationale behind the generation-skipping transfer tax?
2. Mary’s descendants include her children, grandchildren, and great grandchildren. Mary is in the process of transferring a residential house worth $700,000 and company stock worth $10,000,000 to her descendants. Assuming that the generation-skipping transfer tax did not exist, what type of tax planning would maximize the preservation of the wealth of Mary’s family?
3. Five years before the death of John, Mary’s spouse, John purchased a $6 million whole life insurance policy on his life and named his daughter, Jane, the sole beneficiary in agreement with Mary. Shortly after purchase, John transferred the policy to an irrevocable trust, naming Jane as trustee. John retained no incidents of ownership. a) Has John made a gift? Explain your response. b) Is the $5 million death benefit included in John’s gross estate?
4. John died leaving Mary a house worth $700,000, company stock worth $10 million, a vehicle worth $20,000, and other personal items worth $5,000. Determine and explain the value of John’s estate property and show the alternate valuation date. Remember to discuss when the fair market values and sale values are used.
5. How do the estate income tax rules encourage a quick distribution of the estate assets of John? In your analysis, use income tax rate for income earned by assets held within an estate of 39.6% at $12,400 in 2016.
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