Estate Planning

FIN 4385-01 Case II: Executive Summary For the past several weeks, BJSMC conducted a comprehensive estate plan providing a structural outline of our client’s, Scott, estate opportunities and limitations subject to specific request. Our client provided us with the following scenarios: 1). If Scott dies this year, predeceasing Sue, and his executor elected his date of death as the valuation date, indicate those assets (and their values) that would be includible in Scott’s gross estate for estate tax purposes.

Also, please explain your reason for the inclusion or exclusion of each asset. 2). Based on Scott’s current estate plan, indicate those assets and their values that would qualify for marital deduction. Explain your reasons for the qualification or non-qualification of each asset for the marital deduction. Based on factual information, hard-copy documentation, and professional experience, BJSMC established the following resolutions to scenario I: The “Catchall Provision” of Internal Revenue Coded states the general rule that the gross estate includes the value of all property interests, real or personal, tangible or intangible. Under Section 2033, the decedent’s estate includes any interest in real estate, cash or money equivalents, whether kept in a bank, savings or checking account, certificates of deposit, money market funds, or a safe-deposit box. The gross estate also includes any stocks, bonds (including tax-exempt bonds), notes and mortgages owned by the decedent.

Therefore, the full values of the following assets are included in Scott’s gross estate under IRC Sec. 2033 since he is the sole owner: o Stock in XYZ Corporation (500 shares) o Other listed common stock o Tax-free municipal bonds o Savings accounts o Household and other tangible personal property • Section 2033 may also apply to inclusion of life insurance. If a decedent owns a life insurance policy on his or her own life at the date of death, the face amount of that policy must be included in the gross estate pursuant to Section 2042(2).

This section establishes a standard regarding incident of ownership whereby the owner of a life policy is required to include the proceeds in the gross estate in the event that he or she possessed any incidents of ownership. In this case, it is specifically mentioned that Scott owns four life insurance policies on his own life. Therefore, the following items are included in Scott’s gross estate under IRC Section 2040: o Ordinary life policy purchased at age 23 o 20 – payment life policy purchased at 34 Ordinary life policy purchased at age 37 o Term to 65 policy purchased at age 44 • Under IRC Section 2039, the total value of the profit-sharing plan and death benefit plan would be included in Scott’s gross estate. o XYZ Corporation – pension (noncontributory) death benefits o XYZ Corporation – profit sharing (noncontributory) death benefits • A special rule was enacted to control the estate taxation of joint property with right of survivorship held solely by husband and wife as well as property held as tenants by the entirety.

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Section 2040(b) (1) pertains to the one-half inclusion rule for spouses. The rule is that one-half the value of such property, regardless of which spouse furnished all or part of the consideration, is included in the gross estate of the first spouse to die. Therefore, half the values of the following assets are included in Scott’s gross estate: o Residence purchased in 1987 o Vacation home o Checking account • All property held in joint tenancy with right of survivorship by joint tenants other than a husband and wife alone is treated under a different rule.

The property is included in a deceased joint tenant’s estate according to a percentage-of-contribution rule. Scott and Dan own the following property equally as tenants in common; therefore, half the value of the listed property will be included in Scott’s gross estate: o Undeveloped real estate • The property that Sue solely owns in her name (Saving account & other personal property) will not be included in Scott’s gross estate. Property and property interests that are includible under Section 2033 are those that are “owned” by the decedent.

Scott doesn’t have any rights of ownership to Sue’s property in her name. Based on factual information, hard-copy documentation, and professional experience, BJSMC established the following resolutions to scenario II: Qualifying Marital Deductions • $246,000 death benefit o Included in Scott’s gross estate • $30,000 and $200,000 ordinary o Payable to Sue in a lump sum • $377,000 of joint property o Right of survivorship • $700,000 property passing o Passed to Sue outright Non Qualifying Marital Deductions & Reason • $70,000/20-payment life insurance policy o Not payable to Sue

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