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Joan, a widow, died on January 15, 2019. At her death Joan owned many assets with the following FMV at DOD (fair market value at time of death):

• savings account $2,350,000
• checking account $3,000
• California tax exempt municipal bonds $1,000,000
• 10,000 shares of Cisco stock [the high and low for the Cisco share on DOD (date of death) was $19 and $21]
• A thoroughbred horse named George appraised at DOD for $900,000 but the executor of the estate was only able to sell it at the Kentucky yearly thoroughbred auction on February 20, 2019 for $500,000.
• residence $6,500,000, which is subject to a mortgage of $300,000
• joint and survivor checking account with her son John in which she contributed all the funds $50,000
• personal and household goods $15,000
• Joan was a beneficiary of a testamentary trust created under the will of her late uncle George, pursuant to which she was entitled to income for life from the trust payable at least annually and over which she had a power to appoint the entire trust assets in favor of anyone. The value of the trust corpus at Joans DOD equals $1,000,000.
• In June of 2008 Joan created an irrevocable trust with $500,000. She was the income beneficiary for 10 years and the remainderman was her nephew Jimmy. The value of the trust at Joans DOD was $4,500,000 (Use Table B Term Certain for assumed 4% rate in June of 2008(actual IRC 7520 rate was 3.8%)) (Hint: possible prior taxable gift?).
• Joan transferred her $500,000 term life insurance on her life into an irrevocable insurance trust in December of 2016. The yearly insurance premium did not exceed the Section 2503 exclusion. (Watch for Section 2035(a))
• Joan was the income beneficiary for her life of a trust created by her Uncle Tom. The remainderman was her nephew Jimmy. The value of the trust $300,000.
• Joan owned whole life $300,000 insurance policy on the life of her son John. At the time of her death the replacement value is $20,000. John is still alive.
• Joan owned single annuity for her life. During her lifetime she received $12,000 per year.
• funeral and administrative expenses $25,000
• charitable donation to Rady Childrens Hospital $100,000
• her will provides that all her estate is to pass to John.

a. Calculate Joan's taxable estate

b. Calculate the amount of Joans estate tax

Some relevant info that may be useful:

IRC 2503 Annual exclusion for a gift of $10,000 indexed ($11,000 in 2002-2005, $12,000 in 2006 - 2008, $13,000 in 2009-2012, $14,000 in 2013-2017 and $15,000 in 2018-2019) per donee. The gift must be a gift of present interest.

Tax deductions:

IRC 2053 Expenses, Indebtedness and Taxes

IRC 2055 Charitable Deduction 100%

IRC 2056 Marital deduction 100% BUT subject to multiple requirements

Inheritance basis (IRC 1014): The heirs will receive a step up in basis to the FMV at the date of death. If the FMV at the time of the death were less than the original basis the heirs would have a step down in basis.

IRC 2041 general power of appointment

IRC 2040 joint interests

IRC 2042 life insurance if the deceased insured is the owner of the policy

IRC 2035(a) transfers or a relinquishment of a power made within 3 years of death, if the value of the property or interest would have been includable under IRC 2036, 2037, 2038 or 2042

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