Question

Fred and Ethel Burns, ages 64 and 59 respectively, are a married couple with one son, Mel, the divorced parent of two children, Bobby, age 9, and Amy, age 7. Fred and Ethel’s only other son, John, who died in an auto accident leaving a wife, Jeanne, and a daughter, Susan, age 15. Fred has had a successful business career, from which he retired recently, during which he and Ethel accumulated the following assets:

1. Family home owned by Fred and Ethel as tenants by the entirety, currently valued at $850,000.

2. Two cars, one owned by Fred and currently valued at $45,000 and one owned by Ethel and currently valued at $40,000.

3. Household furnishings, owned by Fred and Ethel as tenants by the entirety, currently valued at $260,000.

4. Clothing and personal belongings owned separately by Fred, currently valued at $25,000 and by Ethel, currently valued at $80,000.

5. Investment account of stocks and bonds solely owned by Fred currently valued at $1,700,000.

6. Term-to-age 65 life insurance owned by Fred, who is the insured and premium payer, with a face amount of $200,000, payable to Fred’s estate as a beneficiary.

7. Whole life insurance owned by Ethel, on which Fred is the insured and premium payer and Ethel is the beneficiary of the $250,000 face amount.

8. Whole life insurance owned by Fred, who is the insured and premium payer, with a $300,000 face amount payable in equal shares to his three grandchildren, Bobby, Amy and Susan.

9. Hunting Lodge in the mountains owned entirely by Fred and currently valued at $90,000. 10. Common Stock in General Motors currently valued at $190,000, paid for by Fred, but owned on a 50-50 basis by Fred and his son, Mel as joint tenants with right of survivorship (JTWROS).

11. Condominium in Florida that was left to Fred by his mother, which is currently, valued at $125,000 and over which Fred has a general power of appointment.

12. Fred and Ethel each have simple wills. Fred’s Will leaves the Hunting Lodge to his former business partner, Graham Jones, for life, then to Fred’s daughter- in-law, Jeanne. Each of Fred’s and Ethel’s wills bequeath a charitable cash contribution to The Ohio State University in the amount of $25,000. Beyond these provisions, each of the wills specifies that all other property of each spouse goes to the other, if living, otherwise, in equal shares “… to our children, per stirpes.”

Assume that Fred dies in a plane crash. His funeral expenses are $10,000, and legal fees to settle his estate are $30,000. Also, there is a $20,000 mortgage to be paid off on the hunting lodge.

1. What is Fred’s gross estate for federal estate tax purposes?

2. What is Fred’s Taxable Estate for Federal Estate Tax Purposes?

3. What is Fred’s Marital Deduction?

4. What is the Federal Applicable Estate Tax Credit assuming Fred died in 2015?

5. What is the Deceased Spousal Unused Exclusion Amount assuming Fred died in 2015? 6. What is the total value of the property Fred and Ethel own jointly?

7. If Fred’s son, Mel, died before Fred, based upon the facts presented, what would be the value of his gross estate for federal estae tax purposes?

Answer 1

1. Fred's gross estates equals to = $3,690,000 ( family home $8,50,000, car $45,000, household furnishing $2,60,000 , clothing $ 25,000, investment bond $ 1,700,000, life insurance $ 200,000 , whole life insurance $300,000 , hunting lodge $ 90,000 , general motors stock $95,000 , condominium in florida $125,000 )

2. Fred's taxable estate for federal estate tax purpose = $3,605,000 ( 3,690,000 - ( $25,000 contribution to ohio state university , funeral expenses $ 10,000 , legal fees $ 30,000 , mortgage of lodge $ 20,000).

3. Fred's marital deduction = $ 1,995,000 ( family home $8,50,000, car $45,000, household furnishing $2,60,000 , clothing $ 25,000, investment bond $ 1,700,000, life insurance $ 200,000 , ethel life insurance 250,000 , general motors stock $95,000 , condominium in florida $125,000)

4. Applicable tax credit if fred died in 2015 = $ 534,000

6. value of property owned by fred and ethel jointly = $ 1,110,000 ( family home $ 850,000 and household furnishing $ 260,000)

7. If mel died before fred then mel's gross estate = $ 95,000 i.e general motors stock