tax question 3

Question 1

The Downer family has owned Downer’s Dairy Farm for generations. The farm totals approximately 800 acres of land. John and his oldest son, Jack, managed the farm.

John, a widower, died in 2013. Realizing that not all of his children were interested in the family business, John bequeathed in his will 200 acres of land each to his four children, including Jack. Jack would like to continue in the farming business. The other siblings would prefer to sell their land. While Jack is a potential buyer for the others’ 600 acres, his financial ability to purchase the land is questionable. Moreover, local developers would pay significantly more than Jack can afford.

John’s estate has been valued at $7 million, including $6 million for the land at its best use value. However, as farmland, the property is worth $4 million, or $1 million per 200-acre parcel. Alison Townsend, the executor of John’s estate, has approached you about the valuation of the estate for Federal estate tax purposes. Specifically, Alison wants to know about the Federal special use valuation rules and whether they might help reduce the transfer tax on John’s estate. Summarize your findings in a memo to the tax research.

Question 2

Ted and Merge Dean are married and have always lived in a community property state. Ted (age 92) suffers from numerous disorders and its frequently ill, while Marge (age 70) is in good health. The Deans currently need $500,000 to meet living expenses, make debt payments, and pay Ted’s backlog of medical expenses. They are willing to sell any one of the following assets:

	Adjusted Basis	Fair Market Value
Wren Corporation stock	$200,000	$500,000
Gull Corporation stock	600,000	500,000
Unimproved land	650,000	500,000

The stock investments are part of the Deans’ community property, while the land is Ted’s separate property that he inherited from his mother. If the land is not sold, Ted is considering making a gift of it to Marge.

a. Write a letter to the Deans advising them on these matters. Their address is 290 Cedar Road, Carson, CA 90747

b. Prepare a memo in this matter for your firm’s client files.