Question

Estate Finance Family Tax Plan Question (If someone is an expert in answering this question. I would appreciate it. Thanks)

Mr. Brady dies unmarried on January 5^th, 2020. Mr. Brady's executor, Greg, engages you to prepare the estate tax return for Mr. Brady's estate. Greg gives you a list of the following assets that he thinks might have to be reported on the return. For the purposes of this question, assume that Brady Inc. is traded on the NYSE and the average of the high and low price that Brady Inc. was trading for on Mr. Brady's date of death was $1,000 a share.

Based on the following list that Greg gives you, calculate Mr. Brady's gross estate. Address to what extent each asset is included in Mr. Brady's gross estate and why.

List of assets

1. 100 shares of Apple, Inc. stock titled in Mr. Brady's name. The average of the high and low price that Apple, Inc. was trading for on Mr. Brady's date of death was $1,000 a share. The record date for a $50 per share dividend was January 3^rd, and Mr. Brady's estate received the dividends on January 7^th.

2. A $100,000 term life insurance policy insuring Mr. Brady and held by the Michael P. Brady insurance trust. Mr. Brady was initial trustee of the trust and served as trustee at his death. The trust is listed as the beneficiary of the policy.

3. A $100,000 term life insurance policy insuring Mr. Brady held by Greg. Greg is listed as the beneficiary of the policy.

4. 100 shares of Brady Inc. held by the Michael P. Brady revocable trust. The revocable trust was created in 2000 and was funded solely by Mr. Brady. The trust provides that during Mr. Brady's life, all income is to be paid to Mr. Brady and principal may be distributed to Mr. Brady for any reason at the trustee's discretion. Mr. Brady retained the right to revoke the trust at any time. Mr. Brady was the initial trustee of the trust, but on January 2, 2019, he resigned and Greg was appointed successor trustee.

5. 100 shares of Brady Inc. held by the Michael P. Brady Irrevocable Trust No. 1 with Tenleytown Trust Company as trustee. The trust was created in 2002 and was funded solely by Mr. Brady. The trust provides for distributions of principal and income to Greg and Marcia at the trustee's discretion to provide for their welfare. Upon Mr. Brady's death, the trust terminates and the remainder is distributed to Greg and Marcia in equal shares. Mr. Brady does not retain any power to remove or replace the trustee.

6. 100 shares of Brady Inc. held by the Hank Brady Family Trust No. 1 with Tenleytown Trust Company as trustee. The trust was created in 1990 and was funded solely by Mr. Brady's father, Hank Brady. The terms of the trust provide income to Mr. Brady for his life. Upon Mr. Brady's death, he has the power to appoint the trust property to anyone including his estate, his creditors and the creditors of his estate through his will. In default of the exercise of Mr. Brady's power of appointment (i.e. if he doesn't exercise it), the remainder is distributed to Greg.   

7. 100 shares of Brady Inc. stock held by the Hank Brady Family Trust No. 2 with Tenleytown Trust Company as trustee. The trust was created in 2005 and was funded solely by Mr. Brady's father, Hank Brady. Under the terms of the trust, the trustee must distribute income to Mr. Brady and may distribute principal to Mr. Brady at its discretion to provide for Mr. Brady's welfare. Upon Mr. Brady's death, he has the power to appoint the trust property to any of his children through his will. In default of the exercise of Mr. Brady's power of appointment, the remainder is distributed to Greg.

8. 100 shares of Brady Inc. stock held by the Michael P. Brady Irrevocable Trust No. 2. The trust was created in 2000 by Mr. Brady and was funded solely by him. Under the terms of the trust, the trustee has the power to distribute principal and income to Greg and Marcia at his discretion to provide for their welfare. The trust names Mr. Brady as the initial trustee. Mr. Brady resigns as trustee on July 4, 2018 and Tenleytown Trust Company becomes the successor trustee. Mr. Brady has no power to remove or replace Tenleytown Trust Company.

9. On August 1, 2018, Mr. Brady made a cash gift of $100,000 to Greg. Mr. Brady paid $40,000 of gift tax on the transfer.

10. On January 15, 2020, the architecture firm that Mr. Brady worked for until his death issued him a check for $20,000 as a bonus for his work at the firm in 2019. Mr. Brady's estate deposited the check in the estate's bank account.

Answer 1

Assuming that accrual system of acounting is followed, the following will be included in Mr. Brady's estate tax return -

1. The shares of Apple Inc were still in the name of Mr. Brady and werent sold, thus, $ 100,000 (100 shares *$ 1000) will be included in Mr. Brady's estate  

The dividend of $5000 ($50* 100 shares) also needs to be included, as the dividend was declared on January 3rd and Mr. brady died only on January 5th.

2. The principal aount of term life insurance will be included in the hand of the Inheritor, in this case the Trust. Thus, the same will not be included.

3. Same applies for this term insurance, in this case, the same will be included in Greg's hand.

4. Mr. Brady  resigned on January 2. Since it's a revocable trust, the trust will continue to operate with greg as the trustee. Thus, the principal amount will be included in Grerg's hand and not Mr. Brady.

5. This trust was created for the benefit for Greg and Marcia, and the income was also paid to them directly. Mr. Brady was just the Trustee. Nothing from this trust will be incuded in Mr. Brady's estate return.

6. Same concept as of point 4 will apply here except that, If mr. brady had any creditors the same will be paid off from the principal and the remaining principal will be given to Greg.

7. Same as point 6 instead of crediirs, amount will be inherited by Mr. Brady's children, in this case none, thus the principal amount will go to Greg.

8. This trust was also created for the benefit of Greg and Marcia and since Mr. Brady resigned from the trust and now the trust is in hands of  Tenleytown Trust Company , nothing will be included from this trust as well.

9. it was a gift on which tax is already paid, thus will not be included in Mr. Brady's estate.

10. $20,000 will be included in Mr. brady's estate.

Total will be the sum of point 1 and point 10 which is -

$100,000 + $5000 + $20,000 = $1,25,000/-