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Before her death, Lucy entered into the following transactions. Discuss the estate and income tax ramifications...

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Accounting

Before her death, Lucy entered into the following transactions.Discuss the estate and income tax ramifications of each of thesetransactions.

A. Lucy borrowed $600,000 from her brother, Irwin, so that Lucycould start a business. The loan was on open account, and nointerest or due date was provided for. Under applicable state law,collection on the loan was barred by the statute of limitationsbefore Lucy died. Because the family thought that Irwin shouldrecover his funds, the executor of the estate paid him$600,000.

B. Lucy promised her sister, Ida, a bequest of $500,000 if Idawould move in with her and care for her during an illness (whicheventually proved to be terminal). Lucy never kept her promise, asher will was silent on any bequest to Ida. After Lucy’s death, Idasued the estate and eventually recovered $600,000 for breach ofcontract.

C. Before her death, Lucy incurred and paid certain medicalexpenses but did not have the opportunity to file a claim forrecovery from her insurance company. After her death, the claim wasfiled by Lucy’s executor, and the reimbursement was paid to theestate.

Answer & Explanation Solved by verified expert
4.5 Ratings (963 Votes)
A The tax remification in this case is the amount borrowed 600000 as an amount of loan should be paid back by the executor of the Lucy and their is no tax payable in this case as the sum borrowed is    See Answer
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