60.1K

Verified Solution

Link Copied!

Part 1 Problem. Gift Taxes. Harold (Harry) Stearns is a very wealthy individual who was formerly the CEO of a fortune 100 company, but he retired in 2010 when he was diagnosed with a slow developing cancer. He had never given any money away prior to 2010, but starting in that year and over the next five years prior to his death in January 2016, he made various gifts as follows:

In 2010 Harry gives $1,213,000 to his daughter Francine so she could purchase a home in Paris where she had recently taken up residence.

In 2011, Harry gives Beth, who is Harrys 25 year old girlfriend, a kitten that cost $25,000 because it is an extremely rare breed. Harry also gives Beth a bank account with $50,000 in it so she can learn to manage money. Beth also lives at Harrys 47^th floor penthouse in the east village of Manhattan.

In 2012, Harry gives Beth $2M in cash by transferring the funds to her bank account. Harry also gives a $600,000 Ferrari as well as $600,000 cash to his son, who he has not spoken with in over 20 years. He made these gifts because he felt that he should treat his two kids equally, even though he only really cared for his daughter Francine.

In 2013, Harry gives Beth $5M in cash by transferring the funds to her bank account.

Part A: Calculate the total taxable gifts after applying all applicable credits and exclusions and then calculate the tax on such taxable gifts, if any (apply a flat tax rate of 35% for taxable gifts/bequests from 2010 to 2012 and a flat 40% rate for 2013-2016).

Part B: Re-calculate the taxes to Harry for all of the gifts above assuming Harry had married Beth in 2009 and assuming they utilize both gift splitting and all available marital exemptions.

Part 2 Problem. Estate Taxes. Use the facts of Part B above (meaning assume Beth and Harry were married) as well as the following facts. Upon his death in January 2016, Harry directs that his estate give all his assets, which were valued at $50M, to his wife Beth after payment of all applicable estate and gift taxes. Beth spends all the money in her accounts plus $10M she borrowed against the assets of the estate and takes a world tour with her cat for ten months. Near the end of the tour, Beths now ridiculously obese feline has a heart attack and dies in Beths arms. After losing Harry and her cat in the same year, Beth decides there is nothing left to live for and on New Years Eve in December 2016 she jumps to her death off the balcony of her 47^th story penthouse. She leaves half of the remaining $40M to her brother and the other half to a 501(c)(3) public charity that researches medication for rare breed cats with heart conditions. Calculate the Estate Tax on both Harry and Beths estates.

Answer & Explanation Solved by verified expert

See Answer