Estate Tax

After reviewing freehold estates. Answer the following questions.

Amy conveys by deed her lake cottage to ”Clare for life, then to Maxine for 20 years, then to Elizabeth and her heirs.

1. What of kind of estate does Clare have?

2. Who receives the property when Clare dies?

3. If Maxine dies before Clare, who receives the property on Clare Deaths?

4. Does Amy have a reversionary interest in the property? Explain

5. What interest does Elizabeth hold?

6. Two remaindermen are involved in the conveyance. Who are they and why are they so classified?

7. Do Elizabeth’s heirs have any interest in the property by this conveyance ?

Problem

This is the first of three tax returns that you will be preparing in this course. This first return will assess your ability to properly handle taxable transfers using the 2513 election to split the gifts. If tax software came with your text purchase, or if you have alternate tax software, you may use it to complete this assignment. If not, a fill-in 2013 709 PDF form can be found in Doc Sharing. Remember, you will be submitting (2) 709 forms, one for James A. Polk and one for Ella R. Polk. If you use the fill-in form in Doc Sharing, two forms are already included.

All submissions for this assignment MUST be in PDF format. If you choose to use tax software, do not submit the tax software file. Save the tax return in PDF format, with your last name in the filename, and submit the PDF file.

#1.

James A. And Ella. R. Polk ages 70 and 65 are retired physicians who live at 13319 Taylorcrest street, Houston, Texas 77079. Their three adult children (Benjamin Polk, Michael Polk, and Olivia Turner) are mature and responsible persons. The Polks have heard that the Obama administration has proposed lowering the Federal gift tax exclusion from $5.25 million to $3 million. Although this change may not occur, the Polks feel they should take advantage of the more generous exclusion available under existing law. Thus, in 2013, the Polks make transfers of many of their high value investments. These and other gifts made 2013 are summarized below.

Prepare 2013 gift tax returns (Form 709) for both of the Polks. A§ 2513 election to split gifts is made. The Polks have made no taxable gifts in prior years. Relevant Social Security numbers are 123-45-6789 (James) and 123-45-6788 (Ella).

#2.

Natalie Bryan, a widow who lives at 425 Flathead Way, Kalispell, Montana 59901, has three adult children (Daniel Bryan, Amanda Green, and Samantha Cruz). During 2013, Natalie makes the following gifts to the children.

To Daniel: Office building in Helena acquired in 2001 at a cost of $800000, current value $1.8 million.

To Amanda: Rental cabin in Whitefisjh inherited in 1999 (value $900,00) from her father, current value $1.9 million.

To Samantha: Vacation lodge on Flathead Lake acquired in 1995 at a cost of $800,000, current value $1.7 million.

Prepare a 2013 gifts tax return ( Form 709) for Natalie (SSN 123-45-6787). Natalie made no taxable gifts in prior years.

#3.

Harriet C. Harper, age 74, died as a result of an automobile accident on June 6, 2013. At the time of her death, Harriet lived at 1520 Marlin Drive, Clearwater, FL, 33758. She was predeceased by her husband. John W. Harper, who died in 2001. Harriet is survived by her two adult children. Travis Harper and Hannah Baker. Information regarding Harriet’s estate is summarized below.

· John’s will established a marital deduction trust with $1 million of assets. Under the terms of the trust, Harriet received a life estate with the remainder passing to their children. (i.e., Travis and Hannah). To obtain a marital deduction for John’s estate, his executor made a QTIP election. On June 6, 2013, the trust had a value of $2 million. During 2013, the trust assets are distributed to Travis and Hannah.

· Harriet owned three insurance policies with Falcon Assurance Company-one on her life and one on the life of each of her children. All policies have a maturity value of $100,00; all name Harriet or her estate as the beneficiary. As of June 6, 2013, the policies on Travis and Hannah each had a value of $40,000.

· A tract of undeveloped land in Pinellas County (FL) was purchased by Harriet as an investment in 2002 for $300,000. To help finance the purchase, Harriet obtained mortgage funds from Tampa Savings and Loan. As of June 6, 2013, the land was worth $900,000, and Harriet owed $100,000 on the mortgage.

· Rental beach cottages in Destin (FL) were inherited from John and worth $1 million on June 6, 2013. The cottages had value of $600,000 when John died; his original cost is unknown.

· A family vacation lodge in Union (SC) was held as joint tenants with right of survivorship in the names of Harriet Harper, Travis Harper, and Hannah Baker. The property was purchased in 2002 for $400,000; $200,000 was provided by Harriet and $100,000 was furnished by each of her children. On June 6, 2013, the lodge was worth $1 million.

· Harriet’s Marlin Drive residence is owned by her. It had a value of $500,000 on June 6, 2013.

· The accident that fatally injured Harriet was caused by the delivery truck of a national soft drink bottling company. Not only was the truck in disrepair, but the driver was charged with DUI. To avoid the adverse publicity of lawsuit involving the obvious gross negligence, the corporate office offered to settle any claims. After careful deliberation, Harriet’s co-executors (Travis and Hannah) signed a release. In return, the estate received $400,000 in cash plus payment of all medical expenses. Of the medical expenses, the doctors and hospital were paid directly by the building company. The settlement was received by the estate before it was closed and the Form 706 filed.

· Other assets owned by Harriet as of June 6, 2013 included:

Checking account at Dunedin State Bank $ 17,500

State of Georgia bonds (interest accrued to date of death) 105,000

Personal and household effects 60,000

Federal income tax refund receivable (for tax year 2012) 2,000

· Liabilities and expenses in connection with the administration of the estate include:

Harriet’s credit card debt and household bills

(e.g., utilities, gardener) $13,000

Federal income tax ( January 1, 2013, to June 6, 2013) 27,000

Funeral expenses 8,000

Attorney’s fees 12,000

Accounting fees 10,000

Appraisal fees and court costs 6,000

Unpaid pledge to Clearwater First Methodist Church Building

Fund ( paid by the estate during its administration) 20,000

· Because Travis and Hannah had experience in handling their father’s estate. Harriet’s will designated them as co-executors of her estate. The probate of the Estate of Harriet C. harper is completed December 16, 2013. Travis and Hannah are the sole heirs.

Prepare an estate tax return (Form 706) for Harriet, In this regard, make the following assumptions.

· Disregard any request for information that is not available

· Some deductions require a choice between the income and estate taxes (Form 706 or form 1041) and cannot be deducted twice . Resolve all choices in favor of Form 706.

· Harriet had made no taxable gifts in prior years.

· Relevant SSNs