Reference no: EM133068454

You are a financial planner, and your clients are Gloria (age 64) and Jackson (age 69) Smith who reside in Georgia. Both are in excellent health. They have two children, Vladimir (age 30) and Victoria (age 27), and one grandchild, Tiffany (age 6). The Smiths currently have the following assets:

ASSETS

• $1,000,000 principal residence (basis is $650,000) titled TBE
• $800,000 FMV of 160 acres of Georgia farmland held by Jackson (basis is $200,000)
• $750,000 in CDs, money market, savings, and checking accounts (all accounts are held jointly)
• $12,500,000 joint stock brokerage account broadly diversified in various stocks and bonds, several of the stocks have a low-cost basis relative to their current FMV
• $1,200,000 IRA held by Gloria with Jackson as the beneficiary
• $2,900,000 401(k) account held by Jackson with Gloria as the beneficiary
• $2,000,000 life insurance policy with Jackson as the owner and the insured (current cash value is $1,300,000), Gloria is the primary beneficiary and the children listed as alternate beneficiaries
• $3,750,000 Jackson Smith Revocable Trust. A lake house valued at $1,750,000 in Asheville NC is held in the trust along with stock and bond investments. Cost basis of the house is $500,000 and the total cost basis for the stock and bond investments is $1,150,000.
• $3,000,000 Jackson Family Irrevocable Trust with Gloria as trustee. The trust is broadly diversified and set up to benefit Gloria, Vladimir, Victoria, or Tiffany, and any future grandchildren. Gloria is only able to withdraw funds for her health, maintenance, or support. She also has a 5-and-5 power which she has never exercised. Jackson does not benefit from nor have any control over the trust.
• $150,000 worth of autos titled jointly
• $125,000 boat at the lake house titled in Jackson's name
• $450,000 painting (with a basis of $150,000) held in Gloria's name
• Jackson also earns $60,000 a year from a joint and survivor annuity that upon his death would pay Gloria $30,000 a year. 

Jackson is a retired executive and just received his last $175,000 in compensation. In addition to the income from the annuity, the Smiths receive $425,000 a year in interest and dividends from their investments and have no debt. They plan to start receiving Social Security retirement benefits when Jackson reaches age 70, at which time his monthly benefit will be $3,800. Gloria will be receiving SS spousal benefits based on Jackson's PIA. 

Any lifetime gifts the Smiths have made prior to 2020 have either taken advantage of annual exclusions, used to directly pay for college education expenses, or were gifts to qualified charities.

Both Gloria and Jackson have wills and their wills list each other as primary beneficiaries, and their two children as alternate beneficiaries. The Jackson Smith Revocable Trust has Jackson as trustee, and Gloria as successor trustee. Upon Jackson's death the trust will become irrevocable with Gloria as trustee and Vladimir and Victoria as successor co-trustees. All family members are beneficiaries of the trust, and the trust can also make distributions to charities. 

The current Section 7520 rate is 1.0%, with the following factors for age 64 through age 70:

Age	Annuity	Life Estate	Remainder
64	16.4760	0.16476	0.83524
65	15.8843	0.15884	0.84116
66	15.2944	0.15294	0.84706
67	14.7079	0.14708	0.85292
68	14.1264	0.14126	0.85874
69	13.5514	0.13551	0.86449
70	12.9838	0.12984	0.87016

1. List at least two strengths and two weaknesses in the Smith's current estate plan?
2. Jackson has been told by his best friend Hamilton that if he dies first, his estate will have to pay estate taxes leaving much less for Gloria and ultimately his children and grandchildren. Is this accurate?
3. What would the total value of Jackson's gross estate be if he were to die today? List each asset and indicate what amount (if any) would be included in his gross estate.
4. What specific deductions could be taken from the Jackson's "gross estate" that you calculated in question 3 before arriving at Jackson's "taxable estate" number? What is Jackson's taxable estate amount?
5. What assets, if any, would be in Jackson's probate estate?
6. Jackson and Gloria considering making the following gifts this year:
   1. Gifting the farmland to UGA in exchange for a charitable gift annuity with income of $24,000 a year for life to Gloria. 
      1. What is the value of the income stream that Gloria will be receiving?
      2. What is the value of the gift that the charity will be receiving?
      3. Are there any gift tax implications for the Smiths with this arrangement?
   2. Jackson and Gloria are considering gifting at least $100,000 to a public charity. What asset or assets would it be most advantageous for Jackson and Gloria to consider gifting, and why?
   3. Jackson and Gloria want to gift $75,000 to Vladimir and $75,000 to Victoria and contribute $30,000 to an UTMA account set up for Tiffany.
      1. What are the gift tax implications for the Smiths, and what how would the gift tax be calculated?
      2. Calculate any gift tax that would be incurred by both Jackson and Gloria. Assume that these are the only gifts they make during the year.
   4. What would be the gift tax implications for Jackson if he were to establish a life estate with the lake house for himself, and have the remainder go to Vladimir and Victoria? Use the current Section 7520 rate of 1%, calculate the value of any gifts, and indicate what amount of would be taxable.