Reference no: EM133033047

You are a financial planner, and your clients are Samantha (age 64) and Luther (age 69) Vanderbilt 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 Vanderbilts 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 Luther (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 Samantha with Luther as the beneficiary
• $2,900,000 401(k) account held by Luther with Samantha as the beneficiary
• $2,000,000 life insurance policy with Luther as the owner and the insured (current cash value is $1,300,000), Samantha is the primary beneficiary and the children listed as alternate beneficiaries
• $3,750,000 Luther Vanderbilt 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 Luther Family Irrevocable Trust with Samantha as trustee. The trust is broadly diversified and set up to benefit Samantha, Vladimir, Victoria, or Tiffany, and any future grandchildren. Samantha 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. Luther 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 Luther's name
• $450,000 painting (with a basis of $150,000) held in Samantha's name
• Luther also earns $60,000 a year from a joint and survivor annuity that upon his death would pay Samantha $30,000 a year.

Luther is a retired executive and just received his last $175,000 in compensation. In addition to the income from the annuity, the Vanderbilts 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 Luther reaches age 70, at which time his monthly benefit will be $3,800. Samantha will be receiving SS spousal benefits based on Luther's PIA.

Any lifetime gifts the Vanderbilts 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 Samantha and Luther have wills and their wills list each other as primary beneficiaries, and their two children as alternate beneficiaries. The Luther Vanderbilt Revocable Trust has Luther as trustee, and Samantha as successor trustee. Upon Luther's death the trust will become irrevocable with Samantha 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. What assets, if any, would be in Luther's probate estate?

2. What specific deductions could be taken from the Luther's "gross estate" that you calculated in question 3 before arriving at Luther's "taxable estate" number? What is Luther's taxable estate amount?

3. List at least two strengths and two weaknesses in the Vanderbilt's current estate plan?

4. Luther 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 Samantha and ultimately his children and grandchildren. Is this accurate?