Mary was married on January 2nd of this year to Gary GolIDigger. Despite Gary’s objection to Mary’s philanthropic ways, he signed a consent on a timely filed form 709 to split all gifts made by Mary during the year.
• For his promise to marry and provide undying love and affection, Mary agreed on January 1st to transfer 10,000 shares of XYZ, Inc. common stock to Gary and in return Gary transferred a legally binding contract promising to marry Mary the following day. The stock was valued at $50 per share on January 1st. Mary actually didn’t get around to calling her broker until they returned from the honeymoon on January 10th and the stock was retitled at that time when it was worth $52 per share.
• Rent-free use of an office owned by Mary provided to her daughter , Charlotte, out of which she will run her campaign to run for district attorney–rental value for this year–$40,000.
• Mary pays her daughter Sheila’s private high school $5,000.00 to cover her expenses (in aIDition to the normal tuition) to travel to Florida to participate in a weeklong spring tournament for the school’s field hockey team.
• Mary pays $75,000 to Dr. Cutslash for plastic surgery for her ex-husband to enhance his possibilities as an aspiring soap opera actor. She has been divorced from him for 18 months.
• Mary paid $50,000 to her indigent sister to be used towards a first-time home purchase.
• Mary exercised a power of appointment donated to her by her Mom over a trust created by Mom in Mom’s will. Mary’s power over the corpus was limited to exercise in favor of Mom’s children and grandchildren for their support, education, and health. Mary exercised such power in favor of her brother and appointed $15,000 of principal to such brother who used the money for his family’s medical insurance that he was purchase as a result of the Affordable Care Act.
• When Gary threatens to leave, Mary agrees to take out a life insurance policy on her life and names Gary as beneficiary of the $500,000 death benefit. The first year’s premium, $25,000, was paid by Mary, the policyowner, this year.
• Mary transfers a painting valued at $100,000 to the local art museum, a 501(c)(3) organization, with an agreement that they will jointly own the painting with each holding the right to display the painting 6 months out of the year. At her death, the museum will receive full title to the painting.
• Mary bought a vacation home and titled it tenancy by the entireties with Gary. Mary paid $300,000 cash for the home.
• Mary gives her son a Porsche Cayenne, fair market value 90,000 which she promised him three years ago only if he graduated Medical School, which he recently did.
• Mary was recently informed by the executor of Mom’s will that Mom’s estate–Mom died 1 year ago–is eligible for a death benefit of $150,000 from her retirement plan. The executor was unaware of this asset until now. Mary, already filthy rich, wrote to the executor and refused this benefit. Since Mary was the only probate beneficiary, the benefit was divided by her three siblings in equal shares as required by the state intestacy statute.
Calculate Mary’s taxable gifts for this year. In your answer, you should aIDress the issues of whether such transfers are (a) gifts for gift tax purposes, (b) taxable transfers (e.g. are exclusions or deductions available), and (c) eligible for gift splitting.
Donny Decedent died January 1st of this year. You have been engaged to prepare the Form 706 for the executor. Based on the following facts, determine (1) who receives the property at death, (2) how and when they get the property by what method of transfer, and (3) the items or property interests includible in Donny’s gross estate for federal estate tax purposes. Discuss what is included in descriptive terms, but don’t worry about valuation issues not yet covered this semester. Donny’s will left all of his estate to his wife Donna.
• Donny’s employer distributed $25,000 to his executor for unused vacation and sick leave time.
• Donny owned a home titled as tenancy by the entireties with Donna valued at $400,000 at the time of his death. Donna paid the entire purchase $350,000 purchase price for the home two years before and she put Donny’s name on the deed.
• Donny transferred $7,500,000 to a living revocable trust two years before his death. The trust terms permit Donny to distribute the money to himself or his children as he selects as long as he is alive. The trust also provides: “at the time of my death, transfer to my children, Dawn and David, in equal shares the maximum applicable exclusion amount available at the time of my death. . . .and transfer the remaining trust estate to the person who is my wife at the time of my death, and if I am not then married, distribute such share to Widener University.” Assume the maximum applicable exclusion amount is $5,250,000.
• Donny transferred a $5,000,000 (value in 2008) vacation home (personal residence) to an irrevocable trust five years ago. The trust provided Donny with the right to live in the home for 10 years for 10 years. Assume the trust has five years until termination at his death. At the termination of the trust, his children are the remainder beneficiaries. At the time of his death, the principal of the trust is $4,000,000.
• Donny’s employer has a nonqualified deferred compensation plan. The plan provides a benefit of $100,000 per year for ten years at the time of his retirement. Assume Donny retired two years ago and has received two years of payments. On his employer’s forms, he designated his wife as beneficiary of the remaining payments.
• Donny has an interest in a trust created by his father in his father’s will. The trust is valued at $800,000 at the time of Donny’s death. The trust provided Donny with all income while he was alive. In aIDition, he could invade principal for any reason while he is alive. At the time of his death, Donny has the ability to appoint the principal to his lineal descendants as he chooses through specific reference to the power in his last will. If no reference is made to the power in Donny’s will, the property passes to his children in equal shares. Donny failed to exercise the power in his will.
• Donny created an irrevocable trust two years ago. The trust provides for income for life to Donna with the remainder at her death to their two children, or their estates, in equal shares at her death. Donny places $20,000 each year in the trust and the trustee applies for, owns, and is the designated beneficiary of a $1,000,000 life insurance policy on Donny’s life.
• Donny has a life income interest in a trust created for him five years ago by Donna with the principal worth $400,000 at the time of his death. The trust provides him with all income with the remainder at his death distributed to their two children. Donny has no rights or powers with respect to principal. Donna filed a gift tax return when creating the trust and elected to take the QTIP election for the gift tax marital deduction for the property transferred to the trust for Donny’s benefit.
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