Question

Your client Mary, a surviving spouse of John, has approached you to provide her with gift and estate planning services. Respond to the following questions and submit your answers in a Word Document to the Unit 2: Assignment Dropbox. Remember to review and reference the applicable sections of the Tax Code, including Publications 706 and 709.

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?

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?

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?

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.

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.

Answer 1

GIFT TAX : A gift tax is a tax imposed on the transfer of ownership of property.

• Here GIFT refers to Any transfer to an individual either directly or indirectly where full consideration is not received in return.
• Gifts to spouse qualify for the marital deduction.

You do not have to pay tax on gifts that are less than the annual exclusion limit i.e.,$14,000.00.

If you gave someone more than $14,000 during the year you are required to file Form 709.

Most assets that pass to a surviving spouse are not subject to estate tax. It is because there is a deduction available, called the marital deduction, for the value of all property.

The proceeds of insurance on the decedent's life are includible in his gross estate under a special provision of the Code. This includes proceeds receivable by the executor of the decedent's estate. It also includes proceeds receivable by other beneficiaries but only if the decedent possessed one or more incidents of ownership in the policy at his death.Thus it is possible to keep insurance proceeds out of the decedent's estate by naming a beneficiary other than the insured's estate and giving up all incidents of ownership in the policy.

Therefore,$5 million death benefit will not be included in John's gross estate.

John’s estate property :

HOUSE : $7,00,000.00

COMPANY STOCK : $1,00,00,000.00

VEHICLE : $20,000.00

PERSONAL ITEMS : $5,000.00

$ 1,07,25,000.00