Question content area top Part 1 Estate planning includes tax planning, but also requires consideration of non-tax issues. Which of the following is NOT a non-tax consideration in estate planning? Question content area bottom Part 1 A. Liquidity to pay funeral expenses and income taxes at death B. Income splitting C. Preparation of a final will D. Preparation of a living will
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Step 1: Identify non-tax considerations in estate planning: liquidity to cover funeral expenses and taxes, preparation of a final will, and preparation of a living will. Show more…
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Saul Schwab, of Knoxville, Tennessee, was 65 when he retired in 2010. Camille, his wife of 40 years, passed away the next year. Her will left everything to Saul. Although Camille's estate was valued at $2,250,000, there was no estate tax due because of the 100 percent marital deduction. Their only child, Eli, is married to Kathleen. They have four children, two in college and two in high school. In 2011, Saul made a gift of Apple stock worth $260,000 jointly to Eli and Kathleen. Because of the two $14,000 annual exclusions and the unified credit, no gift taxes were due. When Saul died in 2015, his home was valued at $810,000, his vacation was valued at $485,000, his investments in stocks and bonds were valued at $1,890,000, and his pension funds were worth $640,000 (Eli was named beneficiary). Saul also owned a life insurance policy that paid proceeds of $685,000 to Eli. He left $60,000 to his church and $25,000 to his high school to start a scholarship fund in his wife's name. The rest of the estate was left to Eli. Funeral costs were $6,000. Debts were $90,000 and miscellaneous expenses were $25,000. Attorney and accounting fees came to $34,000. Use Worksheet 15.2 to guide your estate tax calculations as you complete these exercises. 1. Compute the value of Saul's probate estate. 2. Compute the value of Saul's gross estate. 3. Determine the total allowable deductions. Enter your answer as a positive value. 4. Calculate the estate tax base; taking into account the gifts given to Eli and Kathleen (remember that the annual exclusions "adjust" the taxable gifts). 5. Use Exhibit 15.7 to determine the tentative tax on estate tax base. 6. Subtract the appropriate unified tax credit (Exhibit 15.8) for 2015 from the tentative tax on estate tax base to arrive at the federal estate tax due. 7. Comment on the estate shrinkage experienced by Saul's estate. What might have been done to reduce this shrinkage? Explain.
Akash M.
Thomas owns a closely held partnership interest that currently represents 60% of the value of his adjusted gross estate (one-half of the closely held business value is real estate). Thomas is concerned about paying sizable estate taxes at his death, so he is considering the inter vivos transfer of part of the partnership interest to his son. If Thomas decides to make the transfer, his partnership interest will be reduced to 30% of his adjusted gross estate. His will bequeaths $30,000 cash to his favorite qualified charity, the business interest to his son, and leaves the rest of the estate to his wife. A disadvantage for Thomas of transferring the business interest, while he is alive, to his son is that the estate will no longer qualify for which of the following? A) A Section 303 stock redemption B) The marital deduction for property given to his spouse C) The alternate valuation date D) Section 6166 installment payment of estate taxes
Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2016. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2018, he had the following receipts: Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2018. Logan also was the designated beneficiary of an insurance policy on Daniel’s life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2013, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2018, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died. Logan’s expenditures for 2018 include the following: Logan and his dependents are covered by his employer’s health insurance policy for all of 2018. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen’s implants. Helen is Logan’s widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2018, upon the advice of his pastor, he prepaid his pledge for 2019. Logan’s household, all of whom he supports, includes the following: Social Security Number Birth Date Logan Taylor (age 48) 123-45-6787 08/30/1970 Helen Taylor (age 70) 123-45-6780 01/13/1948 Asher Taylor (age 23) 123-45-6783 07/18/1995 Mia Taylor (age 22) 123-45-6784 02/16/1996 Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married. Part 1—Tax Computation Using the appropriate forms and schedules, compute Logan’s income tax for 2018. Federal income tax of $4,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund. Part 2—Follow-Up Advice In early 2019, the following take place: Helen decides that she wants to live with one of her daughters and moves to Arizona. Asher graduates from dental school and joins an existing practice in St. Louis. Mia marries, and she and her husband move in with his parents. Using the insurance proceeds he received on Daniel’s death, Logan pays off the mortgage on his personal residence. Logan believes that these events may have an effect on his tax position for 2019. Therefore, he requests your advice. Write a letter to Logan explaining in general terms the changes that will occur for tax purposes. Assume that Logan’s salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. Use the 2018 Tax Rate Schedules and standard deduction amounts in projecting Logan’s tax for 2019.
Sri K.
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