Before her death, Lucy entered into the following transactions. Discuss the estate and income tax ramifications...

Before her death, Lucy entered into the following transactions. Discuss the estate and income tax ramifications of each of these transactions.

A. Lucy borrowed $600,000 from her brother, Irwin, so that Lucy could start a business. The loan was on open account, and no interest or due date was provided for. Under applicable state law, collection on the loan was barred by the statute of limitations before Lucy died. Because the family thought that Irwin should recover his funds, the executor of the estate paid him $600,000.

B. Lucy promised her sister, Ida, a bequest of $500,000 if Ida would move in with her and care for her during an illness (which eventually proved to be terminal). Lucy never kept her promise, as her will was silent on any bequest to Ida. After Lucy’s death, Ida sued the estate and eventually recovered $600,000 for breach of contract.

C. Before her death, Lucy incurred and paid certain medical expenses but did not have the opportunity to file a claim for recovery from her insurance company. After her death, the claim was filed by Lucy’s executor, and the reimbursement was paid to the estate.

Solutions

Expert Solution

A. The tax remification in this case is the amount borrowed $600000 as an amount of loan should be paid back by the executor of the Lucy and their is no tax payable in this case as the sum borrowed is as a loan amount and their is no tax implications on the borrowed sum of amount.

B. The act of Ida in this case is not valid as the recovery of $600000 is not according to the law as their is not contact in case of social contracts and in this case their is a social contract between Lucy and Ida. As Lucy asked Ida about her help in his illness and promised to pay $500000 in favour of her help. As promises made by any family member to another family member can't be sued in law.

C. The contention of the Lucy's executor is very right in this case as filing for medical expenses from the insurance company after the death of Lucy can only be done by her executor only. Since the reimbursement was paid by the estate it can further recovered by the insurance company to the amount of reimbursement paid.

ekkarill92 answered 6 months ago

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