General Preparation

Darrin’s estate will be the primary focus of this exercise, although there are a few questions regarding Kathi. You can review the Estate Plan Scenario Worksheet that lists of all the couple’s assets along with columns to designate Darrin’s % ownership, Darrin’s ownership value, who will received the asset upon Darrin’s death (heir, legatee, beneficiary, the reason you believe the asset will be transferred to that person (i.e. clause 5 in the will, titling of account, bypassed probate by contract law, etc.), and place to mark if you believe the asset/liability/expense should be included in the gross estate, probate estate or marital deduction calculation. Gathering this information will go a long way in helping you with the specific questions, so you are encouraged to fill the Estate Plan Scenario Worksheet out prior to going through the specific questions listed below.

 Specific Questions Review

You should be able to look up most of the keywords in Appendix B to get the textbook reference.

  1. Review chapter 7. All four potential solutions are discussed there in close proximity to one another. Remember the goals they are trying to achieve:

“Kathi and Darrin would like to reward Scott for all of his hard work by giving Scott and Elizabeth 3/4 of the business and giving the remaining 1/4 of the business to James. They do not want James to have any control over the business, just to have an income interest.”

  • Review chapter 4 (specifically 109-113). Exhibit 4.5 & 4.6 provide a concise picture of the probate process. As you read through the instructions, don’t forget the Notes to the Financial Statements.
  • The Gross Estate includes all the assets in Darrin’s estate. Remember the three-year look-back period. An example of the Gross Estate calculation can be found in chapters 6 & 14.
  • The probate estate calculates all of the assets that will be distributed through probate process. Please refer to exhibit 4.5 & 4.6. Additionally, there is an example in chapter 4 of how to calculate the probate estate.
  • The marital deduction includes all assets that transfer from the Gross Estate to the spouse. Remember the deductions. A wrinkle in this situation is that the couple live in a community property state. Make sure to review that topic in chapter 3, pgs. 77-80.
  • Remember there is a distinction between the failure-to-file vs. failure-to-pay. There is an example of this calculation on pg. 212.
  • Keywords: Qualified transfers, predeceased ancestor exception (chapter 13, pg. 502), irrevocable trusts.
  • Keywords: Trusts for minors 2503(c), skip person, GSTT tax
  • Community Property (chapter 3 pgs. 77-80), Intestacy (chapter 4, pgs. 98-99 or chapter 2, pgs. 20-22).
  • Election to Disclaim (chapter 12, pgs. 485-487), Predeceased ancestor exception (chapter 13, pg. 502), remember to review your asset worksheet.
  • Keyword: Adjusted Basis (chapter 6, pgs. 212-15)
  • Keyword: Adjusted Basis; Community property vs. common law (separate property) state (chapter 3, pgs. 77-80 or chapter 6, pgs. 212-15).
  • Split interest gift (chapter 9, pgs. 348-358). Remember the order.
  • Keyword: Will-Clauses
  • Chapter 12
  • Income taxes (chapter 12, pgs. 474-475)
  • Income taxes (chapter 12, pgs. 474-475)
  • Chapter 12
  • Keyword: Alternative Valuation Date
  • Keyword: Incident of Ownership in a life insurance policy

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