JIM AND PAM BACKGROUND Jim (age 48) and Pam (age 50) have been married for 25 years and live in Texas, a community property state.

Notes to Financial Statements:

1. Assets are stated at fair market value (rounded to even dollars).

2. Liabilities are stated at principal only (rounded to even dollars).

3. The adjusted basis of “The Grillenium Falcon” is $1,800,000.

4. Inherited Stock Portfolios have children designated as beneficiaries.

5. Jim’s whole life insurance policy has a death benefit of $2,000,000 and is

solely owned by Jim. The number in the table represents the cash

surrender value of the policy. The designated beneficiary is Pam. 6. PropertyOwnership:

a. CP-communityproperty(JimandPamhaveacommunity property interest)

  1. TC – tenants in common (Jim and Pam are equal owners in all property owned as tenants in common).
  2. JTROS-Jointtenancywithrightofsurvivorship(JimandPamare joint tenants of all property JTROS).
  3. H – Jim’s separate property.
  4. W-Pam’sseparateproperty.

QUESTIONS:

Assuming the facts given, answer the following questions. Use the gift and estate rates and exclusions at the time of the transfer. Use 2016 exclusions, credits, and tax rate for the estate tax. A table including the annual exclusion amounts is attached.

  1. Given Pam’s shocking diagnosis, Jim and Pam decide to make an estate plan. What are the appropriate steps to make an estate plan? What practitioners should be included in the estate planning discussions and what are the roles of each practitioner? (Value – 6 points)
  2. What is the first step, in your opinion, that the estate planning team will recommend that Jim and Pam take? (Value – 6 points)
  3. As a member of the estate planning team, what facts would be most important to you in making an appropriate estate plan? Why? (Discuss at least 4 facts – and their implications – that would be important to you for full credit.) (Value – 6 points)
  4. What trust options would you recommend as part of Jim and Pam’s overall estate plan? Why? (At least 3 trust options must be discussed for full credit.) (Value – 6 points)
  5. What additional planning advice would you give Jim and Pam regarding their estate plan that has not already been addressed? Creativity will be rewarded!! (Value – 6 points)
  6. Calculate the taxable gifts made by Jim and Pam for the years 2000 – 2016. Where appropriate, explain any exemptions or exclusions that applied. Calculate gift tax due in the same years. You must calculate the gift tax amount prior to the application of any applicable credit amount. For example, you cannot simply tell me that the gift tax is $0 because Jim and Pam have not used their applicable credit amounts and expect to receive full credit. You must go through all the steps of each gift tax calculation to achieve full credit. (Value – 10 points)
  1. Assume that Jim dies unexpectedly on December 31, 2016 survived by Pam. Calculate the total value of Jim’s gross estate for federal estate tax purposes. For purposes of this question, assume that any gift tax paid was more than 3 years ago. (Value – 3 points)
  2. Assume that Jim dies unexpectedly on December 31, 2016 survived by Pam. Calculate the total value of the assets that will pass through Jim’s probate estate. For purposes of this question, assume that any gift tax paid was more than 3 years ago. (Value – 3 points)
  3. Assume that Pam dies on December 31, 2016 survived by Jim. Calculate the total value of Pam’s gross estate for federal estate tax purposes. For purposes of this question, assume that any gift tax paid was more than 3 years ago. (Value – 3 points)

10.Assume that Pam dies on December 31, 2016 survived by Jim. Calculate the total value of the assets that will pass through Pam’s probate estate. For purposes of this question, assume that any gift tax paid was more than 3 years ago. (Value – 3 points)

11.Assume that Pam dies December 31, 2016. Calculate the marital deduction amount that will be available to Pam’s estate tax. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Pam’s death, she executed a will that bequeaths all her

property to Jim. e. Expenses:

i. Last Medical Expenses = $70,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

(Value – 6 points)

12.Assuming the same facts as #11, what amount of Pam’s exemption can pass to Jim under the principle of “portability”? (Value – 6 points)

13.Assume that Pam dies December 31, 2016. Calculate the estate tax due at Pam’s death. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Pam’s death, she executed a will that bequeaths all her

property to Jim. e. Expenses:

i. Last Medical Expenses = $70,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

f. Gift and Estate tax rate schedule for 2016 is located on page

215 in your textbook.

Hint: Use the layout provided in your book on page 226.

(Value – 6 points)

14.Assume that Jim dies December 31, 2016. Calculate the marital deduction amount that will be available to Jim’s estate tax. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Jim’s death, he executed a will that bequeaths all his

property to his children. e. Expenses:

i. Last Medical Expenses = $20,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

(Value – 6 points)

15.Assume that Jim dies December 31, 2016. Calculate the estate tax due at Jim’s death. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Jim’s death, he executed a will that bequeaths all his

property to his children. e. Expenses:

i. Last Medical Expenses = $20,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

f. Gift and Estate tax rate schedule for 2016 is located on page

215 in your textbook.

Hint: Use the layout provided in your book on page 226.

(Value – 6 points)

16.Assume that Pam dies December 31, 2016. Calculate the marital deduction amount that will be available to Pam’s estate tax. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Pam’s death, she executed a will that bequeaths one-

third of her property to the American Cancer Society, one-third of her property to Jim, and one-third of her property to her children.

e. Expenses(bornbythebeneficiariesoftheestateinproportion to their share of the estate):

i. Last Medical Expenses = $70,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

(Value – 3 points)

17.Assume that Pam dies December 31, 2016. Calculate the charitable deduction amount that will be available to Pam’s estate tax. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Pam’s death, she executed a will that bequeaths one-

third of her property to the American Cancer Society, one-third of her property to Jim, and one-third of her property to her children.

e. Expenses(bornbythebeneficiariesoftheestateinproportion to their share of the estate):

i. Last Medical Expenses = $70,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

(Value – 3 points)

18.Assume that Pam dies December 31, 2016. Calculate the estate tax due at Pam’s death. For purposes of this question, assume the following:

a. $0statedeathtaxcredit

b. $0 credit for prior transfers

c. $0foreigndeathtaxcredit

d. Prior to Pam’s death, she executed a will that bequeaths one-

third of her property to the American Cancer Society, one-third of her property to Pam, and one-third of her property to her children.

e. Expenses(bornbythebeneficiariesoftheestateinproportion to their share of the estate):

i. Last Medical Expenses = $70,000 ii. Administrative costs – $90,000

iii. Funeral expenses = $25,000

iv. Losses during administration = $0

f. Gift and Estate tax rate schedule for 2016 is located on page

215 in your textbook.

Hint: Use the layout provided in your book on page 226.

(Value – 6 points)

19.Jim and Pam are aware that estate taxes may be due upon either of their deaths. What strategies could be implemented to deal with the payment of those taxes? (Hint – at least 3 strategies must be addressed for full credit.) (Value – 6 points) 

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